American Hog News USDA

[mikey]

Wednesday, April 22, 2009Print This Page
CME: Pork Freezer Stocks Lower Than a Year Ago
US - CME's Daily Livestock Report for 21 April 2009.



USDA released the results of its latest survey of refrigerated warehouses on Tuesday afternoon (21 April) and the report showed that at the end of March, inventories of beef, pork and chicken products continued to trend below year ago levels, a result of a sharp reduction in US meat production but also due to efforts from end users to reduce freezer stocks and free up financial resources.

The impact of the reduction in supplies has been more pronounced in the chicken industry, whereby the cutbacks in slaughter and relatively good export volume have caused ending inventories to decline both compared to year ago and five year average levels. Below are some of the highlights from the report.

Pork: Total pork freezer stocks as of 31 March were 593.2 million pounds, 9.8 per cent lower than a year ago but still 12.1% higher than the five year average. Ham stocks fell sharply in March, partly due to smaller production volumes and possibly because of good exports to Mexico. Also, Easter Sunday this year was on 12 April, so there was some drawdown in inventories at the end of March as product was processed and transferred to distribution centers and stores. Total ham stocks were 73.3 million pounds, 22.7 per cent lower than a year ago but still 11.9 per cent higher than the five year average. Pork belly stocks moved counterseasonally lower in March. Normally stocks build up into the spring as end users prepare for the high demand summer business. However, 31 March pork belly inventories were 73.3 million pounds, 3.1 per cent lower than the previous month and 25.9 per cent lower than a year ago. Belly stocks still are 5.6 per cent higher than the five year average.


Beef & Poultry: Total beef stocks at the end of March were 422.5 million pounds, 1 per cent lower than a year ago but 1.7 per cent higher than the five year average. Total chicken stocks were 634.7 million pounds, 17 per cent lower than a year ago and 9.6 per cent lower than the five year average. This was the smaller chicken freezer inventory level since May 2007. Turkey inventories was the only category among the main species to still show an increase over year ago levels. Total turkey stocks at the end of March were 508.0 million pounds, 18.6 per cent higher than a year ago and 22.6 per cent higher than the five year average.

[mikey]

Friday, April 24, 2009Print This Page
CME: Murky Outlook for Pork Values This Summer
US - CME's Daily Livestock Report for 23 April 2009.



It has been a disappointing week for hog futures, in large part due to weaker than expected wholesale pork prices and a murkier outlook for pork values this summer. Normally pork prices begin to move higher at this time of year, in large part due to smaller supplies but also because of better demand for retail cuts destined for the outdoor grill, such as loins.

The upward shift in pork prices appeared to be underway last week and this buoyed hog futures, with the June contract closing last Friday at 73.625, a much smaller number than what the market was thinking at the start of the year but maybe the start of better things to come. The rally seemed to run out of steam pretty quick, however. Instead of continuing to climb, as they seasonally do at this time of year and as lower slaughter numbers would indicate, the pork cutout lost 80 cents on Tuesday and another $1 on Wednesday. On Thursday the pork cutout took back some of the losses but still, at $59.78/cwt, it was $2.13 lower than the week before and a whopping $12.43 /cwt or 17.2 per cent lower than a year ago.

Part of the reason for the decline in wholesale pork values is due to the inability of packers to charge more for pork loins, an item that should carry the cutout at this time of year. Loin prices (1/4”) on Thursday were quoted at $92.76/cwt, 5.3 per cent lower than last Friday and some 20 per cent below year ago levels. Why items such as loins have so far failed to gain traction is a matter for debate.

It could be that inexpensive beef offers in late February and March pushed a number of retailers towards planning more beef features this spring thus limiting demand for pork cuts going into the start of the grilling season. Keep in mind that retail features are planned a number of months in advance so that could explain why pork finds itself at a disadvantage despite sharp slaughter cutbacks.

Another reason could be that even with smaller year over year output, total pork production still is relatively large by historical standards. Yes, pork supplies in Q2 are expected to decline about 3 per cent from year ago levels but last year pork production exploded and was greatly supported by a red hot export market. 2009 Q2 pork production is still expected to be up 5.7 per cent compared to Q2 in 2007 and up 8.3 per cent compared to Q2 in 2006.

As the bottom chart shows (below), pork currently has become much more competitive with beef and this could cause retailers looking for fill in business to take another look at late minute pork features. It could still save the day for pork packers but the clock is ticking...

 

[mikey]

Tuesday, April 28, 2009Print This Page
CME: Pork Demand Amid Swine Flu Scare
US - CME's Daily Livestock Report for 27 April 2009.



CME Group Lean Hogs Futures traders voted a resounding “SCARED” today over the spreading swine flu outbreak — which some are already referring to as a pandemic. The key issue, of course, is demand for pork when “swine flu” is making people sick in several countries and has now killed nearly 150 people in Mexico. US pork and meat groups fought today to clear pigs’ honorable name and appear to be making some headway.

The World Health Organization issued a press release late in the day pointing out that the virus should not be called “swine flu” since it contains genetic material from swine, asian and avian (bird) flu strains. WHO recommended that it be called “North American influenza.” We’re not sure why it isn’t “Mexico influenza” since virtually every case points to that country as the source of the virus. There has still been no documented case of the virus in pigs and it is still not known whether the virus will even infect pigs. WHO, the US Centers for Disease Control (CDC) and most media reports point out that the virus is not spread through pork but that mention usually comes very late in the story.

The demand issues are three-fold. First, there is demand in the US domestic market — where 80 per cent of all US production was sold last year and, very likely, a higher percentage will need to move this year. Continued repetition of the “it doesn’t come from pigs or pork” message and the name change, if it is actually picked up, will help but some of our contacts fear that the damage may already be done. The second issue will be pork demand in Mexico — our second largest export market thus far in 2009. Closed businesses and schools and restrictions on movement will slow Mexico’s economy and the pig and flu connection may be more difficult to break there, especially with press reports that the flu may have started in a small boy who lived near a pig farm in Veracruz state.

Finally, there are other export markets. Russia banned all meat imports from Kansas, Texas and California today and banned pork imports from those states plus Alabama, Georgia, Kansas, New Mexico, Louisiana and Oklahoma. As we pointed out yesterday, Russia has a long history of blocking meat imports for about any reason, so this is no surprise. There are reports that China will officially ban pork imports from some states as well and other Southeast Asia countries have announced bans — pretty understandable given their past experience with bird flu.

There was some good news for livestock producers today — the pace of US corn planting grew sharply last week. USDA reported that 22 per cent of acres are now planted. That compares to only 10 per cent last year but an average of 34 per cent over the past 5 years. The big catch-up state was an important one — Iowa, where 47 per cent of the corn acres are now planted.

[mikey]

Wednesday, April 29, 2009Print This Page
CME: Just How Important are Import Bans?
US - CME's Daily Livestock Report for 28 April 2009.



To get a feel for what US pork producers and packers are going through, imagine that someone with the same name as you robbed the local bank and, upon his/her apprehension, your local newspaper included YOUR picture in the front page, above-the-fold story. A definite sinking feeling that makes you want to scream and cry at the same time, huh? That is about what the pork people have been through with swine flu/ North American influenza/Influenza A (H1N1) over the past few days.

That last moniker (Influenza A (H1N1)) is the latest name for the virus that has now been identified in people around the globe but not in a single pig that anyone knows of. In fact, no one knows yet if pigs will even contract the virus — though those experiments are no doubt ongoing.

It does not appear, though, that the press is picking up on the nonswine names to any great degree, so the industry is still fighting to get the message out that the virus is not transmitted through pork. Secretary of Agriculture Tom Vilsack finally made that statement today. No one knows for sure whether US consumers have reacted negatively but it is very likely. Both futures and cash markets have moved sharply lower the past two days. Nearby May Lean Hog futures were down $2.75 today after falling the $3.00 limit yesterday. June and July were down $2.35 and $1.78 today after limitdown moves yesterday as well. The weighted average price of hogs sold through negotiated trades in Iowa-Minnesota lost a combined $2.83/cwt the past two days. Assuming carcasses equal in weight to last week’s estimated barrows and gilts average (201 lbs.), and that the $2.83/cwt decline applies to all of the 826,000 head slaughtered this week, the price drop has already cost hog producers $4.8 million — or more, since a price rally has been expected.

Just how important are the import bans announced by our foreign customers? Not unimportant but none of them are as important as Mexico — which has not banned imports but where the most damage to our export demand may occur due to the name connection between pigs and flu. The table at left shows pork and pork variety meat exports to Mexico, Russia and China/Hong Kong through February. The last two countries are the most notable ones which have blocked imports from some states. Note that Mexico is MUCH, MUCH more important in about every way — volume of pork and pork variety meats, value of both classes of products, year-on-year growth. China/Hong Kong is an important factor in the pork variety meat market but readers should realize that over 75 per cent of the volume and value of pork variety meats going to China/Hong Kong have gone through Hong Kong and Hong Kong has NOT announced any ban on US pork products. Do you think product might still find its way to China through Hong Kong much as product from pigs fed ractopamine did last year? We think it is very, very likely. Russia is a growing market for US beef variety meats but represents only 7 per cent of the volume and 4.3 per cent of the value of ‘09 YTD shipments.

We know that “facts” aren’t always what drives markets and that US consumer demand may indeed suffer. But the pressure on meat markets has every earmark of a panic based on emotion and psychology. An understandable panic, perhaps, but a panic nonetheless. We wouldn’t call the import bans “panics”, though. They are simply clear-headed decisions with no basis of fact — and the countries make them are no surprise.

[mikey]

Thursday, April 30, 2009Print This Page
North American Influenza Hits US Pork Sector
US - It could take weeks - or longer - before US pork producers recover from export restrictions tied to a worldwide influenza outbreak, said Purdue University agricultural economist, Chris Hurt.

Purdue News
 

With China, Russia and Ukraine refusing to accept pork from US states and other nations increasing their screening of pork imports, hundreds of millions of pounds of pork could wind up in the US retail market at discounted prices, Chris Hurt said. That means lower prices for a pork industry already reeling in a tough economic climate, he said.

"This couldn't get much worse for the pork industry," Professor Hurt said. "You've got other countries starting to follow the lead of Russia and China by limiting their import of our pork. Then there are the consumers worldwide who are linking the word 'swine' to pork, even though this influenza strain did not come from swine. And then there's the world economy in general."

The H1N1 influenza virus has been blamed for up to 159 deaths in Mexico and one in the United States. Although commonly called "swine" flu, the virus is a new strain combining parts of bird, human and pig influenza viruses. Nearly 70 people in seven states, including Indiana, have been infected with the virus.

Although no cases of the new H1N1 strain have been reported in pigs and properly handled and cooked pork is safe to eat, the pork industry is feeling the brunt of public misunderstanding about the virus, Professor Hurt said.

"China and Russia represented 27.4 per cent of our pork exports in 2008. Any loss of those sales to those important markets will lower pork prices," Professor Hurt said. "May lean hog futures have fallen 8 per cent since Friday (24 April), closing at about $63.30 per hundredweight, or more than $5 lower.

"This is, in essence, the market anticipation of what this flu event means over the next few months. The concerns are that 'swine' flu could reduce US pork exports, that US consumers could reduce pork consumption and, more broadly, that the flu could cause a slowing of world economic growth, which would reduce demand for food products in general."

China and Russia are the second and fourth largest international buyers of US pork, respectively. Together, the two nations imported 1.28 billion pounds of the nearly 5 billion pounds of pork exported from the United States in 2008.

American hog farmers produced 23.3 billion pounds of pork this past year.

H1N1 fallout is just the latest setback for pork producers, Professor Hurt said.

"The pork industry has been losing money since the fall of 2007," he said. "Producers are near break-even right now. We had hoped that producers would return to profitability by May, but that isn't likely to happen now."

The flu outbreak is the third major shock to the pork industry in the past 18 months, Professor Hurt said. Hog farmers were beset by sharply rising feed prices in late 2007 and 2008 and the global financial crisis this past fall, he said.

"The pork industry uses 28 per cent of the grains fed to livestock and 23 per cent of the protein meals fed to livestock," Professor Hurt said. "If this flu event causes demand for pork to drop, that means less usage of corn and soybean meal, with downward impacts on those prices, as well."

As bad as it is for the pork industry, Hurt doubts that hog farmers will be hit as hard by the H1N1 outbreak as beef producers were by the US mad cow disease cases in late 2003 or the poultry industry by avian influenza in 2005-06.

"Both beef and poultry exports were negatively impacted," Professor Hurt said. "In fact, US beef exports have only recovered to about 75 per cent of their 2003 levels.

"Pork producers should not panic. The immediate reaction of humans and markets to situations like we have now is often more severe in the short term than the long term."

Meanwhile, the World Organization for Animal Health (OIE), in a written written statement released on Wednesday has said that the trade bans on pork and pork products are unjustified. The organisation has said that "there is no case of infection in animals confirmed in the zones where cases of human infection have been detected".

"Given there is no case of infection in animals confirmed in the zones where cases of human infection have been detected, it is not necessary to introduce specific measures for international trade in swine or their products nor to consider that consumers of pork products are at risk of infection," the statement said.

[mikey]

NPB Reinforcing 'Pork is Safe' Message
US - To assure consumers that pork is safe, and will continue to be safe to eat, the National Pork Board on Thursday, 30 April, approved funding for a national media advertising program. The advertising, which should begin appearing this week, will be targeted to major daily newspapers and to a variety of Internet-based media.



"We have been conducting nightly consumer research this week to measure consumer reaction to the deluge of information about 'swine flu,'" said Chris Novak, chief executive officer of the National Pork Board. "Even though the World Health Organization, the US Department, the Centers for Disease Control and Prevention, the US Department of Agriculture and others have said this influenza strain should be called H1N1 and not swine flu, we needed to know if consumer behavior is being impacted."

More than 8 of every 10 consumers continue to believe pork is safe to eat, according to the daily consumer tracking research. And among consumers who have purchased pork products recently, more than 9 in 10 believe it is safe.

"But we know from the research that there is additional work that needs to be done to continue to provide assurances for consumers," Mr Novak said. "In addition to emphasizing the pork safety message, this advertising effort also gives us the opportunity to remind consumers about the nutritional benefits from eating pork."

Mr Novak said that based on the board's approval, plans for the advertising message and for the selection of media are being finalized. Preliminary plans call for using both newspapers with national reach and some regional newspapers, plus online search engines and sites that reach those consumers who make food purchasing decisions.

Additionally, the board approved additional funding for other efforts to get the "pork is safe" message to consumers. Those efforts include making experts about food safety and nutrition available to television stations and to other media.

"The early and extensive reporting of this terrible disease as swine flu, even though international health organizations were saying there has been no proven connection between this virus and pigs, did some damage," Mr Novak said. "It has been devastating for our producers who have seen hog prices fall each day this week.

"But the positive consumer attitudes about the safety of pork we are seeing in our tracking research are good news. We are optimistic that consumers will continue to make pork part of their families' daily meals."

Steve Weaver, a California pork producer and president of the National Pork Board, noted that record-high prices for corn and soybeans over the last year already have put many pork producers in a perilous financial position. "The events of the last week have added to that stress," Mr Weaver said. "The National Pork Board understands these challenges and remains committed to doing whatever it can to help producers in these difficult economic times."

[mikey]

Second Quarter Was Better for Tysons
US - Tyson Foods has reported its second quarter (Q2) and six-month results. Operating margins for its Pork, Beef and Prepared Foods businesses were positive, and there was an improvement in the performance of its Chicken activities compared to the previous quarter.



Highlights
Tyson Foods has reported its Q2 and six-month results. Q2 2009 earnings per share was $(0.28) as compared to $(0.02) last year. Income tax expense includes $62 million, or $(0.17) per diluted share, from changing the method of recognizing interim income taxes.

Chicken operating loss was $46 million, an improvement of $240 million versus first quarter 2009. Pork operating margin was $29 million, or 3.4 per cent, while Beef operating margin was $28 million, or 1.2 per cent. Prepared Foods operating margin was $19 million, or 2.8 per cent; excluding the impact of plant closing charges of $15 million, operating margin was $34 million, or 5.0 per cent. The company ended the quarter with over $1.1 billion of cash at the end of the quarter, including restricted cash.

CEO's Comments
"Our loss of $0.24 per share from continuing operations in the second quarter includes $0.17 from a change in the method we used to recognize interim income taxes and $0.02 from a one-time charge for a prepared foods plant closure," said Leland Tollett, interim president and CEO of Tyson Foods.

"Our Chicken segment has been profitable since the end of February, and I am pleased with the consistent progress we are making. We have improved our operational efficiencies, our product mix, and we are benefiting from lower grain costs and more favorable chicken prices. Our Beef, Pork and Prepared Foods segments generated financial returns at or near normalized ranges in the second quarter, excluding one-time charges in Prepared Foods. Our tax rate for the remainder of the fiscal year should be closer to normal, and we believe the operational recovery we are experiencing will be reflected in our results for the third and fourth quarters.

"It is too soon to predict the impact of the H1N1 outbreak. At this point, none of our pork plants are impacted by export bans. Our multi-protein, multi-sales channel business model puts us in a good position should consumers change which proteins they buy or where they buy them. Protein demand usually picks up as we move into the summer grilling season, and we are cautiously optimistic despite current conditions."

Business Summary
The following is a summary of the operating earnings impact (in millions) of selected derivative activities. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.


Chicken sector
The Chicken business accounted for 37.4 per cent of Net Sales in Q2 2009, and 35.8 per cent of Net Sales in the first six months of 2009.

Chicken segment sales were $2.4 billion and $4.6 billion, respectively, in the second quarter and six months of fiscal 2009. Operating loss was $46 million and $332 million, respectively, in the second quarter and six months of fiscal 2009.

Sales and operating results were impacted positively by increased sales volume, partially offset by lower average sales prices. The increase in sales volume for both the second quarter and six months of fiscal 2009 was due to inventory reductions and sales volume related to recent acquisitions.

The inventory reductions and recent acquisitions led to an overall decrease in average sales prices, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products.

Operating results were adversely impacted in the second quarter and six months of fiscal 2009, as compared to the same periods of fiscal 2008, by a decline of $106 million and $321 million, respectively, from our commodity risk management activities related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions, which impact current and future period operating results. As compared to the same periods of fiscal 2008, operating results were also adversely impacted in the six months of fiscal 2009 by an increase in grain costs of $172 million, while the company had a slight benefit from a reduction in grain costs during the second quarter of fiscal 2009.

Operating results for the second quarter and six months of fiscal 2008 included charges of $13 million related to closing the Wilkesboro, North Carolina, cooked products plant.

Beef sector
The Beef business accounted for 38.4 per cent of Net Sales in Q2 2009, and 39.6 per cent of Net Sales in the first six months of 2009.

Beef segment sales were $2.4 billion and $5.1 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $28 million in both the second quarter and six months of fiscal 2009.

Operating results as compared to the same periods in 2008 were impacted positively by lower average live prices, offset by lower average sales prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $6 million and an improvement of $35 million, respectively, from our commodity risk management activities related to forward futures contracts for live cattle as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Operating results for the second quarter and six months of fiscal 2008 included charges of $25 million related to restructuring operations at the Emporia, Kansas, plant and an impairment of packaging equipment.

Pork sector
The Pork business accounted for 13.4 per cent of Net Sales in Q2 2009, and the same percentage of Net Sales in the first six months of 2009.

Pork segment sales were $844 million and $1.7 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $29 million and $84 million, respectively, in the second quarter and six months of fiscal 2009.

Operating results as compared to the same periods in fiscal 2008 were impacted positively by increased average sales prices, offset by higher average live prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $17 million and $37 million, respectively, from our commodity risk management activities related to forward futures contracts for live hogs as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Operating results were negatively impacted by higher operating costs as compared to the same periods of fiscal 2008.

Prepared Foods sector
The Prepared Foods business accounted for 10.8 per cent of Net Sales in Q2 2009, and 11.1 per cent of Net Sales in the first six months of 2009.

Prepared Foods segment sales were $684 million and $1.4 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $19 million and $54 million, respectively, in the second quarter and six months of fiscal 2009.

Operating results were impacted positively by higher average sales prices and increased sales volumes, offset in the six months of fiscal 2009 by higher raw material costs. Operating results for the second quarter and six months of fiscal 2009 included charges of $15 million related to closing its processed meats plant in Ponca City, Oklahoma.

[mikey]

CME: International Pork Shipments VERY Good
US - According to CME's Daily Livestock Report for 14 May 2009, though late April and early May have been a challenge for US meat exports in general and US pork exports in particular, international beef shipments in March were good and pork shipments were VERY, VERY good considering they are following last year’s remarkable performance.



The graphs below show monthly exports to key destinations for both pork and beef. Note that these are in carcass weight equivalents (from USDA’s Economic Research Service) where some data you will see are in product weight (from the Department of Commerce and USDA’s Foreign Ag Service). The carcass weight data are directly comparable to beef and pork production totals. We realize these charts are a bit busy but we have found few other representations that show country detail and context quite as well as these. Please pardon our making you squint.

 


Some highlights of March and year-to-date export data are:

March ‘09 pork exports were actually 2.2 per cent LARGER than in March 2008. The biggest gainer in percentage terms was Taiwan at +120 per cent of a very small number last year. March shipments to Mexico, at 67.6 million pounds were 65 per cent larger than one year ago — a fact that makes the difficulties of recent weeks even more painful since Mexico’s share of US exports through March was nearly 21 per cent this year versus 12 per cent last. Shipments to Canada were 12 per cent higher than last March while shipments to South Korea were 22 per cent higher.


Year-to-date pork exports thru March amounted to 1.033 billion pounds carcass weight, only 6.6 per cent less than last year’s March YTD figure of 1.106 billion pounds. That number compares to –10.8 per cent at the end of February. Shipments to Japan and Mexico were up 9.7 per cent and 60 per cent, respectively, YTD at the end of March but all other major markets were lower — Canada by 2.6 per cent, Russia by 45 per cent, Korea by 9 per cent and, perhaps most important, China/Hong Kong by 63 per cent. Note, however, that shipments to both Russia and China/Hong Kong have improved since the beginning of the year when business with Russia was especially dismal.


The value of pork exports, at $922.4 million, is still ahead of its 2008 pace by 3.7 per cent as of the end of March. The two most important contributors to this growth in terms of both dollars and percentage change are Japan and Mexico.


Pork variety meat exports were up 61 per cent in volume and 59 per cent in value through March.


March beef exports of 132.4 million pounds carcass weight were 5.2 per cent larger than one year ago. That increase leaves YTD beef exports thru March at 383.7 million pounds, 6.6 per cent larger than last year. South Korea (+3827 per cent from last March’s shipments of only 238,000 pounds), Japan (+42 per cent) and Other markets (+42 per cent — and these, if they were one country, would constitute our SECOND LARGEST beef market) led the year-on-year growth. March shipments to Canada and Mexico were 15.8 and 22.7 per cent lower, respectively. The value of beef exports at $548.6 million, YTD thru March, was 8.3 per cent higher than in 2008.

[mikey]

Market Preview: Defining Demand for Pork
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



We all know demand is not what it should be, right? But which demand are we talking about? Specifying just where any demand problems may lie is a point upon which even I have not been clear enough lately. In addition, what I am seeing in hog prices is not squaring with information I’m hearing about consumer attitudes and behavior. So I did a little number crunching last week.

First, a bit of background. Hog prices have languished far below last year’s level and levels where virtually everyone expected them to be this summer. But does that mean pork demand is bad? Well, sort of, if you are talking about wholesale demand, which is closely correlated with hog demand since wholesale prices and by-product values are the major determinants of hog bids.

But why is wholesale demand soft? We know exports are very soft given the difficulties we face with pork demand in Mexico and political gamesmanship by Russia and China. But what about domestic demand? It has to have been hurt by all of the "swine flu" talk and sick people and a few related deaths, right? Funny thing, though, the National Pork Board’s tracking surveys have shown that consumers understand that pork is safe and, after an initial setback, responses indicating a willingness to buy pork have bounced back. So is it just exports? I went back to my data files and did a bit of ciphering to see if I could figure out a bit more about what is going on.

Let’s go back to 24 April (wouldn’t we like to do that knowing what we do now?). At that time, Chicago Mercantile Exchange’s Group Lean Hogs futures indicated a normal seasonal rally of a little over $10/cwt carcass (see Figure 1). Let’s call those expected prices since a lot of people were betting real money on them, thus bringing a great deal of collective information and brainpower to the marketplace.


On 24 April, there was also an expected level of slaughter. My calculation is represented by the red line in Figure 2. It is based on the year-on-year changes in the inventory of pigs of various weights in the March Hogs and Pigs Reports and some adjustments for lower imports from Canada and historical relationships. On average, my expectations for weekly slaughter since 1 March had been almost perfect relative to actual slaughter but, as you can see, averaging baled me out some weeks when the actual slaughter was either higher or lower than my expectations. Now, everyone’s expectations were not the same as mine but they were probably pretty close since mine were based on the major sources of public data. Let’s add in some "expected weights" and we get "expected supply."


So we have a set of expected supplies and expected prices. So what changed to make the actual prices (the fuscia line in Figure 1) and new price expectations (the red line in Figure 1) so much different? Demand went in the tank when H1N1 flu hit, right? Maybe not.

Consider the following numbers:

Mexico took 3.7 per cent of US commercial pork production in January through March. Last week’s product-weight export data for Mexico showed that shipments were lower in April and at least part of that decline could have been due to H1N1 influenza becoming an issue there even before April 24. So let’s ignore April as tainted data.


Russia took 1.3 per cent of US commercial pork production in February and March after starting the year very slowly.


China took about 0.7 per cent of US commercial pork production in March after two months of just less than 0.3 per cent. I include China here just for information. I’m not going to count this as a lost market since Hong Kong is still open.


Since 25 April, federally inspected hog slaughter has been 1.6 per cent larger than my expected levels.


I expected carcass weights to run one pound higher this summer vs. one year ago. Since 25 April, weights have been roughly two pounds or 1 per cent larger than I had expected.
Added Supply Dampens Prices
Add up the non-China items and we see that the supply of pork to US consumers is 7.6 per cent higher now than I, and very likely many others, expected to be the case at the end of April. That is a lot of extra pork to sell!

Is the difference between actual/expected prices commensurate with this change in supply? Yes, they pretty well are. Using a price flexibility (ie. the percentage change in price for a one percent change in supply) of -2, the change in expected supply would be expected to drive prices 15.2 per cent lower. Comparing actual cash prices through June 5 and June 5 futures prices to the 24 April futures shows that prices fell -9.1 per cent below the expected level the week of 1 May and the decline grew to -14.1 per cent last week. The June 5 futures prices suggest that the impact will be about -20 per cent this week and fall to -17 to -18 per cent through 10 July.

Those numbers aren’t precise but economics is not chemistry. They are reasonably close and they suggest that EXPORTS ARE THE BIGGEST PART OF THIS PROBLEM and that DOMESTIC DEMAND IS STILL REASONABLY STRONG. The reason domestic prices are so low (we’ve all heard of $1.50/lb. boneless loins) is that so much product has been placed on the domestic market by a) export reductions and b) higher-than-expected slaughter and weights.

Reduce Slaughter Weights
What can be done? Get weights down as quickly as you can. That’s easier said than done with packers managing pig and product flows carefully but do whatever you can! Eat pork and encourage others to do so! I know you do that regularly but do it more! I’ve told the Pork Board that we need to jump-start pork demand in Mexico. I know they and the US Meat Export Federation are trying but the situation with Mexican consumers is a tough one. And finally, the National Pork Producers Council is doing whatever it can to get Russia and China open – but the rule of international trade law is not highly regarded by the folks on the other side of those talks.

 



As published in National Hog Farmer's Weekly North American Preview.

[mikey]

CME: When it Rains, it Pours for Pork Producers
US - According to CME's Daily Livestock Report for 12 June 2009, finding positive news in the meat business is not an easy task these days and, while not as bad a week as some in the recent past, this week was no feel good source for battered livestock and meat producers.



Generally, meat prices continued to decline on lower week-on-week and year-on-year offerings, a negative statement about the state of farm-level demand. The chicken business is a different story, however — more on that later.

First for beef — the Choice cutout value lost 1.1 per cent for the week and 11 per cent versus last year on FI slaughter that was 1 per cent lower than last week and 3 per cent lower than last year. None of those relationships are encouraging. Lower slaughter runs had held the promise of higher cattle prices at some point this summer but pork and beef demand (or is it supply? — more on that later, too!) have kept beef prices under pressure. Cattle feeders have finally gotten weights back to near year-ago levels, a positive factor in this market but lower production is still not commanding higher prices as ample pork supplies and continued export challenges cloud the cattle demand picture. It is too early to tell what the impact of the CWT dairy buyout might be. Note that beef cow slaughter in the table at left is for two weeks ago — Memorial Day week. Dairy cow slaughter has been erratic but trending upward the past four weeks but look for it to grow sharply as we get into July and the CWT cows start moving to harvest.

And now pork. It appears that when it rains, it pours for pork producers. Last week’s slaughter was 1.2 per cent lower than the week before but 1.3 per cent HIGHER than last year in a week when the March Hogs and Pigs Report and changes in Canadian imports suggested that slaughter should be 3 per cent of so LOWER than last year. As can be seen in Figure 1, FI hog slaughter has exceeded the levels suggested by the March report for 5 weeks now. “That’s because H1N1 backed hogs up,” someone says. But where was the week when slaughter was sharply lower than expected? Yes, packers slowed hogs down some the week of 1 and 8 May, but it doesn’t show up in this graph. “But weights are not falling as they should be, we must be backing hogs up.” True, see Figure 2. But taken together, these facts say we are seeing some unexpected pigs. Ugh, more hogs (by 1.6 per cent versus our forecast levels since 5 May), bigger hogs (2 lbs. or 1 per cent more than the 1 lb. or 0.5 per cent increase we expected) PLUS the lion’s share of the 3.7 per cent of our production that Mexico was taking through March and the 1.3 per cent of our production that Russia was taking in February and March. Add those up and you get 7.6 per cent more pork on the US market than was expected in late April. A demand issue — export demand that is — has caused a supply issue. Compare the expected price impact of 7.6 per cent more product to what has actually happened and domestic pork demand doesn’t look bad at all.

 


And that brings us to chicken. 12-city composite broiler prices have increased over $10/cwt since early April. Breast meat prices have strengthened about 10-cents/lb. but are still only $1.50/lb. for boneless/ skinless breast. The star has been legs and leg quarters: Up 22 and 40 per cent, respectively since 4 April (see Figure 4). Those importers in Mexico, Russia and China had to buy something, didn’t they?

 

 

[mikey]

Smithfield Records $190 Million Loss
US - US pork producer and pig meat processing giant Smithfield foods has reported a loss of $190.3 million for the last financial year.



The loss was on the back of a 10 per cent rise in sales compared to last year of $1.1 billion.

Last year the company has a net income of $128.9 million.

Smithfield said that hog production had suffered because of the record feed costs.

However, despite the losses, the company announced that it had achieved record profits in export sales and in the packaged meats division.

The company has reduced its debt during the year by more than $890 million and cut its capital expenditure by 62 per cent.

Smithfield has started to restructure its pork group with the aim of improving pre-tax profits by $55 million in the coming year and by $125 million in the 2011 financial year.

The current results have included the initial costs of this restructuring of $88.2 million.

During the year, Smithfield announced that it had merged with the Spanish meat processing company Campofrio, increasing its stake in the company to 37 per cent.

Smithfield has also completed the sale of its beef processing and cattle feeding operations for $575.5 million, giving a pre-tax gain of $99.7 million.

The fourth quarter for Smithfield saw the loss at $78 million, which was largely driven by losses in hog production because of continuing high costs. However, Smithfield said it expects these costs to moderate in the near future.

"Fiscal 2009 was one of the most challenging years in over three decades for the company," said Smithfield President and CEO Larry Pope.

"We faced grain and oil markets that reached record highs and then fell precipitously. These input dynamics, combined with an oversupply of all proteins as well as a worldwide recession and credit constraints, put significant pressure on the business.

"But despite the challenges we confronted, we did not sit on the sidelines and wait for the economic conditions to improve; we have taken numerous actions to make us a more profitable company: namely, we repositioned the company's operations and made meaningful improvements to our liquidity and financial strength.

"As a result, I am especially pleased with our packaged meats business which delivered record profits even as fresh pork was weak in the face of an economic downturn.

"For the full year, the pork segment produced record profits, before the $88 million of restructuring costs, and is set to deliver very strong results going forward," Mr. Pope said.

"While the meat business looks very good, we are concerned about our hog production business as it deals with an oversupply of live hogs and the unintended consequences of the current ethanol policy."

Mr Pope added: As we move into fiscal 2010, our highest priority is on continuing the restructuring of the Pork Group, continuing to reduce debt, improving liquidity and strengthening the balance sheet."

"I strongly believe that the hog production industry has reached an inflection point where, due to deep and extended losses, liquidation is now a recognised reality by all in the industry.

"To date, Smithfield has already reduced the size of its US herd by two million market hogs annually, and we are initiating a further reduction of three percent of our US sow herd, effective immediately.

"This reduction, combined with the additional cuts by our fellow producers should shrink supply to a point where the industry can return to profitability. This liquidation is long overdue," he said.

"We believe that the A(H1N1) virus had only a short-term effect on U.S. fresh pork demand, which hurt our business last month. As the consumer received more accurate information about the virus, we saw domestic market conditions begin to move back to more normal levels.

"Unfortunately, we continue to experience restrictions in some international markets, specifically China, which is negatively impacting exports in the first quarter of fiscal 2010."

[mikey]

CME: While Beef, Pork Prices Down, Poultry Up
US - According to CME's Daily Livestock Report for 17 June 2009, the latest data on meat prices at the consumer level (May) continued to show a deflationary trend in the price of beef and pork items but less so for poultry prices.



The recession has clearly had a bigger impact on the first two but for different reasons. In the case of beef, consumers likely traded down and opted for less expensive food options. Over the last few months, retailers likely realized that the only way to move beef volume was to give consumers lower prices.

As for pork, prices also continued to drift lower, mostly because of increases in the amount of pork available in the domestic market. The pork industry clearly was hurt by the slowdown in export purchases and the fact that despite much talk about it, producers were not able or willing to cut production as much as expected.

Poultry price inflation has outpaced the other two major species. In part this may reflect the consumer shift towards less expensive meat protein options, especially in the last six months. Also, the industry has been able to cut production significantly in recent months, removing a considerable amount of slack in the system and eliminating the need for constant discounts in order to move product. Clearly ‘poultry’ as a category is quite broad and within that some items have depreciated more than others.

In all, however, poultry prices are currently up some 17 per cent in the past five years while beef and pork prices are up 13 per cent and 8.6 per cent, respectively. Below are some highlights from the May CPI release:

The CPI index for beef & veal prices declined 0.5 per cent from the previous month and was up just 1.6 per cent vs. May 2008. The pork price index declined 0.4 per cent from the previous month and is currently running 1.1 per cent higher than a year ago. Poultry prices declined a full 1 per cent from the previous month but are up 3.1 per cent vs. May 2008.


Overall food inflation declined 0.2 per cent from the previous month and it is currently up 2.7 per cent from a year ago. In 2008, all food inflation averaged around 5.5 per cent.


Food away from home prices rose 0.1 per cent from a year ago and are surprisingly running some 4.2 per cent above year ago levels. There is plenty of anecdotal evidence suggesting restaurants are providing customers with more value but that is yet to be reflected in the CPI data.


Prices for food consumed at home declined 0.5 per cent from the previous month and were up just 1.5 per cent compared to a year ago.

[mikey]

Weekly Review: Sow Prices Under Pressure
US - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.


Sow prices have come under pressure in the last two weeks with light-weight sow prices a bit harder than heavy-weight sows. Hopefully, this means we have gotten more serious about reducing the size of the sow herd.

Pork exports in April were over 21 per cent below a year earlier. For January through April, pork exports were down nearly 11 per cent. For these four months, pork exports to Japan were up 8.5 per cent, to Mexico up 54 per cent, to Canada down 6.8 per cent, to South Korea down 3.9 per cent, to Russia down 47.2 per cent, to China and Hong Kong down 64.2 per cent, to Australia up 40 per cent, to Taiwan up 69.8 per cent and to other countries down 8.8 per cent compared to last year.

Pork imports in April were down 3.4 per cent from the same month in 2008. For January-April, pork imports were down 5.0 per cent from a year earlier. In January-April, our pork imports from Canada were up 2.4 per cent, from Denmark down 8.5 per cent, from Mexico down 71.5 per cent, from Poland down 18 per cent, from Italy down 10.1 per cent and from other countries down 27.7 per cent from 2008.
Net pork exports as a percent of production for January-April were at 16.65 per cent in 2008 and declined to 14.29 percent in 2009 or a reduction of 14.2 per cent from 2008 to 2009.

For January-April, the value of pork exports per hog slaughtered in the US was $32.51; add pork variety meats in and the amount per hog was $39.44. Even though it was down from last year, exports are still very important to the US hog industry.

Hog slaughter in the last month has been almost exactly the same as last year. Weights have added at least 2 per cent to the pork supply. Exports during April were enough smaller to add 3.9 per cent to the domestic supply; and in the last month the reduced pork exports have probably added between five and six per cent to the domestic supply. When one considers we have had seven to eight percent more pork recently this year domestically than last year, it indicates our problem as to prices has been supply and not demand.

The H1N1 flu probably impacted demand negatively at the consumer level in late April and early May but has come back in recent weeks.

Demand for live hogs is down because of the smaller exports. Retail pork prices in 2009 were up 1.4 percent from April and up 1.8 per cent from May of 2008. Retail pork prices for January-May were up 3.5 per cent this year from last year.

The processor-retailer got most of the increase in retail price. For January-May the processor-retailer margin was up 9.1 per cent. The producers' live hog price was down 4.3 per cent, and the packers' margin was down 7.3 per cent.

Pork cutout this week Thursday afternoon at $55.58 per cwt of carcass was down $1.05 per cwt from a week earlier.

Live hog prices Friday morning were $0.75 - $4.00 per cwt higher compared to a week earlier. The weighted average negotiated carcass price Friday morning was $0.54 - $1.32 per cwt higher compared to last Friday.

The live prices for select markets Friday morning were: Peoria $33 per cwt, Zumbrota, Minnesota, $37 per cwt and interior Missouri $39.50 per cwt.

The weighted average negotiated carcass prices by area Friday morning were: western Cornbelt $56.43 per cwt, eastern Cornbelt $52.68 per cwt, Iowa-Minnesota $56.47 per cwt and nation $54.25 per cwt.

Feeder pig prices this week at United Tel-O-Auction were mixed with some pig prices sharply lower than two weeks ago. All of the pigs weighed 50-60 pounds and sold from $47-93 per cwt.

Nationwide feeder pig prices were $5-7 per head lower last week. Ten-pound-basis pigs sold for $25.23 per head and 40-pound-basis pigs sold for $27.15 per head.

Slaughter this week under Federal Inspection was estimated at 2,062 thousand head, down one per cent from last year.

[mikey]

Weekly Outlook: Expectation for USDA Reports
US - On 30 June, the USDA will release its quarterly Grain Stocks and annual Acreage reports. Under the current scenario of declining soybean stocks and late planting in the eastern corn belt, these reports will provide important information for the corn and soybean markets.



A useful way to put the estimates of 1 June stocks into perspective is to compare the actual estimates when they are released to the calculation of expected stocks based on the combination of known use during the previous quarter and estimates of unknown use based on the USDA’s projections for the year. For corn, the USDA projects feed and residual use for the year at 5.35 billion bushels, 588 million less than during the previous year. Use during the first half of the current year has been reported at 3.572 billion bushels, 589 million less than during the first half of the 2007-08 marketing year. If the USDA’s projection for the year is correct, use during the last half of the year should be equal to that of a year ago. Use during the third quarter this year, then, should have been near the 1.095 billion bushels of a year ago.

For seed, food, and industrial use of corn, the USDA projects a 15.5 per cent increase for the year. Use during the first half of the year was 19 per cent larger than that of a year ago. Use during the last half of the year should be only 12.4 per cent larger. Third quarter use, then, should have been near 1.305 billion bushels. Census Bureau export estimates are available through April. Adding the USDA estimate for May suggests that third quarter exports were near 483 million bushels. Total use of 2.883 billion bushels during the quarter would leave June 1 stocks at 4.08 billion bushels, about 50 million larger than stocks of a year earlier. Based on available information, this method appears to overestimate feed use and underestimate processing use of corn for the quarter, but the estimate of total use appears reasonable.

For soybeans, Census Bureau estimates of crush and exports are available through April, so only consumption for May needs to be estimated. Using the USDA estimate of May exports, exports for the third quarter of the year were likely near 245 million bushels. For the year, the USDA projects the domestic soybean crush at 1.65 billion bushels, 8.4 per cent smaller than the crush during the 2007-08 marketing year. Through April, the domestic crush totaled 1.127 billion bushels, 9.1 per cent less than during the same period last year. If the USDA’s projection for the year is correct, crush during the final four months of the marketing year will total 523 million bushels, 6.8 per cent less than during the same four months last year. If the May 2009 crush was 6.8 per cent less than the May 2008 crush, crush for the quarter totaled 427 million bushels

Seed and residual use of soybeans during the quarter is difficult to anticipate because of the large year to year variation in use. The five year average for the quarter is 41 million bushels, in a range of 19 to 63 million. If seed and residual was at 41 million, total use should have been near 713 million bushels, leaving 1 June stocks near 590 million bushels. Based on the acceleration in the rate of domestic crush in March and April, the crush for May might be slightly underestimated here, suggesting slightly smaller June 1 stocks.

In March, the USDA reported producer intentions to plant 84.986 million acres of corn in 2009, nearly one million less than planted in 2008. Soybean planting intentions were reported at 76.024 million acres, about 300,000 more than planted in 2008. Due to late planting in the eastern corn belt, the general expectation is for the June Acreage report to show fewer acres of corn. Delayed planting in some corn and spring wheat areas suggests that soybean acreage will exceed March intentions. Guesses seem to center on 1.5 to 2 million fewer acres of corn and 2.5 to 3 million acres more soybeans than reported in March. The June estimates this year may contain more than the usual amount of producer intentions since considerable unplanted acreage still remains in the wettest areas of the eastern corn belt. In addition, the final report of planted acreage can vary from the June report. For corn, actual planted acreage in the previous 5 years has varied by as little as 40,000 acres to as much as 1.35 million acres from the June estimate. For soybeans the difference has ranged from 400,000 to 1.185 million acres.

In addition to planted acreage, 2009 corn and soybean production potential will be influenced by yield prospects. With the most critical part of the growing season yet to come, the recent sharp price declines suggest the market does not have significant concerns about yields at this time.

[mikey]

US Swine Economics Report
US - On 26 June USDA will release the results of their latest survey of the US swine inventory, writes Ron Plain in his Swine Economics Report.

 
Ron Plain
My estimates are that the breeding herd is 2.0 per cent smaller than a year ago, the market hog inventory is 0.9 per cent smaller, and the total herd is 1.0 per cent smaller than on 1 June, 2008.

Total slaughter of barrows and gilts was down roughly 3.4 per cent during March-May due, in large part, to a 56 per cent drop in imports of slaughter hogs from Canada. Slaughter of US raised hogs was a bit higher than expected based on the March inventory report. Since 1 June, slaughter of US raised barrows and gilts has been up about 1 per cent compared to the same weeks last year.

My estimates of the 1 June market hog inventory by weight groups are: 180 pounds and heavier 101.2 per cent, 120-179 pounds 99.0 per cent, 60-119 pounds 98.0 per cent, and under 60 pounds 99.0 per cent of a year earlier.

In their last inventory report, USDA predicted March-May farrowings would be 2.9 per cent smaller than a year earlier and June-August farrowings would be down 4.0 per cent. I'm estimating spring farrowings actually were down only 1.0 per cent and summer farrowings also will be down 1.0 per cent. I'm forecasting fall farrowings to be down 0.8 per cent compared to September-November 2008. Declining feed prices in the second half of 2008 halted what had been a rapid reduction in the sow herd. December-February, sow slaughter was 7.4 per cent lower than a year earlier and March-May sow slaughter was down 15.2 per cent.

I'm estimating that pigs per litter were up 1.8 per cent this spring. My estimate is the March-May pig crop was 100.8 per cent of a year earlier. Feeder pig imports during March-May were 25 per cent below last spring's level.

My estimate of hogs in the 60-179 weight groups implies that third quarter daily hog slaughter will be 2-3 per cent below year-ago levels, if the inflow of slaughter hogs from Canada continues to be down. I expect live hog prices to average close to $47/cwt ($62/cwt carcass) in the third quarter of 2009.

I expect hog slaughter during the fourth quarter of 2009 to be 1-2 per cent lower than the number slaughtered in October-December 2008. If so, look for fourth quarter 2009 hog prices to average close to $42.50/cwt on a live basis and $55/cwt on a carcass basis.