Wednesday, February 18, 2015

Industry expansion, export woes send US hog futures down

  • Andrea Gantz
    Hog futures are down, largely due to industry expansion and a decreased demand for U.S. pork exports to China.
    From WATTAgNet:
    Hog futures prices recently hit a four-year low, with industry expansion and a decline in exports to China contributing to the price drop.
    A strong dollar has made U.S. pork more costly than meat from competing countries, which has led to a slowdown in exports, especially to China. And cargo slowdowns due to a labor dispute at West Coast ports has left stocks of pork products piling up.
    Pork prices followed beef prices to record high levels in 2014, as the cattle herd shrank and porcine epidemic diarrhea (PED) virus diminished the U.S. hog herd. Pork prices have since fallen, but U.S. consumers that had switched to chicken are not yet returning to pork, retail food analysts say.
    Boneless pork loin prices have fallen more than 15 percent at retailers in the past two months alone, and the U.S. Department of Agriculture in January predicted U.S. hog prices will drop 17.5 percent overall this year.
    “Now that pork prices are collapsing, this could make pork more competitive,” said Jared Koerten, senior foods analyst with research firm Euromonitor International. “The question is, will [consumers] switch back from chicken to pork?”
    Hog industry expansion
    A boom in hog barn construction across rural America began as meat packers like Tyson Foods, Seaboard, JBS USA and Cargill pushed farmers to rebuild quickly after PED virus killed an estimated 8.5 million piglets in 27 states.
    The building boom has facilitated a surge in the U.S. hog and pig herd, which has rebounded from an eight-year low of 65.1 million this past September, to 66.1 million as of December, according to USDA data. The agency expects pork production to increase by 4.6 percent in 2015 over 2014.
    Pig farmers, meanwhile, could be facing declining margins and rising debt payments in the years to come.
    “When times get tough, and they will in the next two or three years, that's when you'll see some of the farmers be tested," said Will Sawyer, a protein analyst with Rabobank.
    Export pressures
    The fall in U.S. pork prices is occurring amid an unexpectedly sharp fall in demand from China, a large U.S. export market. U.S. pork exports to China in 2014 were down 34 percent from a year earlier, as high U.S. prices sent Chinese buyers to lower-priced suppliers from Europe.
    Many meat packers also curtailed their pork exports to China because of the livestock drug ractopamine, a growth stimulant U.S. hog farmers use to add animal weight before slaughter. China bars shipments from at least 25 U.S. pork plants over ractopamine issues, said Joel Haggard, Asia Pacific director of the U.S. Meat Export Federation. The list includes some of the largest U.S. slaughterhouses.
    Domestic Chinese factors also are at play. The country’s economic slowdown has contributed to a 9 percent decrease in demand for pork, according to swine-industry research firm Meanwhile, Chinese hog production is on the rise, with 735 million pigs raised for slaughter, up 2.7 percent over 2013, according to Feng Yonghui, general manager at There are signs the Chinese hog boom may have overheated, with producers losing money for 13 months in a row, Feng said. 

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