Pork production and prices have both declined in recent weeks and questions exist about both domestic and export demand, according to a recent analysis distributed to Extension Service swine team members by University of Wisconsin-River Falls agricultural economist and livestock specialist Brenda Boetel.
Based on a report in the second week of March by the U.S. Department of Agriculture, Boetel pointed out that the March estimate for pork production is down by .2 percent from February. Total red meat and poultry production for March was projected to be down by 1.5 percent from March of 2012.
Although the supply of pork was down, hog prices also dropped during the month ending on March 8, Boetel indicated. She cited a lean hog price index of $89.92 per hundred in early February compared to an index price of $77.82 on March 8.
Boetel attributes a softness in domestic demand for pork to uncertainties about the economy, a cutback in disposal income due to the two percent increase in the payroll tax on Jan. 1, and increases in the costs of gasoline and some food staples. This means consumers are not likely to buy as much meat as in the recent past, she noted.
The furlough of federal meat inspectors in packing plants is also a possibility by early summer through September, Boetel observed. She suggested that a decrease in inspections will curb the demand for live hogs.
Even if a forecast that per capita consumption of pork will be up by .5 percent this year proves to be true, Boetel is not convinced that this will translate to noticeably higher prices. That's because pending weaknesses in portions of the export market will send more pork into the U.S. retail market and exert a downward pressure on prices, she explained.
After exports of hogs/pigs, pork, and product hit a record high value of $6.7 billion in 2012, Boetel detects potential problems in four of the top six export markets. The top six importing countries of U.S. pork are Mexico, Japan, China, Canada, South Korea, and Russia.
Boetel noted that the value of the Japanese yen has fallen 20 percent compared to the U.S. dollar since July of 2012, resulting in a higher cost on products imported from the U.S.
South Korea has a surplus of domestic pork and Russia and China have begun to enforce bans on a residue in imported pork and beef, she added.
That residue is beta agonist (from growth promoter compounds), which Russia cited as its reason for ending imports of U.S. pork in February, Boetel reported. China has also announced its intention to impose a zero beta agonist residue restriction on pork imports, she said.
Loss of international markets becomes a double problem for the pork sector because foreign buyers often pay premium prices for many offal items and for other products that are not popular in the U.S. market, Boetel pointed out. "The loss of such markets will cut deeply into already thin margins for packers."
The price outlook for hogs in the first quarter of 2013 is for a three percent decrease compared to the first quarter of 2012, Boetel stated. For later quarters in the year, she expects possible increases - though smaller than previously anticipated - of .2, .3, and 1 percent compared to the same quarters in 2012.