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Agrimarketing : June 2009
42 Focus on Pork:32 Feature Story 6/12/09 1:13 PM Page 44 THE PORK PRODUCERMARKET/continued frompage 42 some hope. If producers sharpened their risk-management skills, focused on efficiencies and tightened down costs they could navigate into 2009,whichwas expected to be challenging but less so than 2008. Of course the global economic recession has further hindered the pork industry’s recovery as domestic consumers pulled back on expenses and foreignmarkets bought less U.S. pork. Then in lateApril, just as hog priceswere beginning a seasonal move higher, the influenza pandemic,whichwas too quickly and easily labeled “swine flu,” surfaced. It not only caused the price rally to retreat, it endedmost hope for one. OnApril 24, pork producers were losing about $5 per head, by lateMay it had climbed to $25 per head. Estimates nowsuggest the TypeAH1N1 influenza episode could cost U.S. producers $800million ormore.While some export markets have responded to scientific rationale and reopened pork trade, others such as China and Russia, remain hard to budge. Today, U.S. producers are tally- Miller ing 19months of losses,withmore to come.May 2010 is nowthemore frequently cited timeline for profitability to return. AsDon Butler,National Pork Producers Council (NPPC) President notes, the economic stress is “unprecedented” and says industry contraction is inevitablewithin the next four to sixmonths.NPPC CEO NeilDierks points out that by late May, producers had, on average, 32%to 35%equity remaining in their businesses. Certainly lenderswill require some producers to close their doors, and some producers have already filed for reorganization. Evenwith all the financial stress, theU.S. is still theworld’s low-cost pork producer, and is theNo. 1 pork supplier by a significantmargin. Expanding exports is the route to 44 Agri Marketing s June 2009 future growth, but it also brings volatility.AsGlennGrimes, University ofMissouri agricultural economist points out, “exports have allowed theU.S. pork industry to grow22%larger than itwould have if the trade situation had held at 1980 levels.” But the industry’s tremendous productivity—the continuous upward trend line ofmore pigs per sowper year and heaviermarket weights—has pushed pork supplies to record highs, including this year, when hog numbers are actually down from2008, but pounds of pork are up. “We need to cut the U.S. herd by 5%to 10%,” says Grimes, in order to re-align prices to profitable levels. He points to $53 per hundredweight as an average breakeven cost,with 2009 hog prices averaging $45 to $47. There is one caveat to cutting the U.S. hog herd by 10%, Grimes adds. “Wewould need to be concerned about losing a packing plant or two, and that could hurt long term.” The bittersweet reality iswith pork, and itsmeat competitors of beef and chicken, all cutting production, 2010will produce higher prices and return profitability for those producerswho can navigate onemore tough year. WORLD HOTSPOTS by Ed Clark, Editor Pig International www.pig-international.com The pork industry has been hit hard for two straight years by sky-high feed prices and theweak international economy.And justwhen there appeared to be some light at the end of the tunnel, on Friday,April 24, the announcement of the erroneously named “swine flu” hit pork producers hard again as consumption worldwide took a sharp dip. The combination of theH1N1 outbreak and rising feed prices since lateApril have resulted in large losses in key producing regions. According to ChrisHurt, Purdue University livestock economist,U.S. production costs of about $52 this summer, and fall costs of $50will remain higher than expected hog prices,with losses expected through the first quarter of 2010. Losses for the last-half of this year are estimated at $7/head,with losses for 2009 in total expected to be $12/head, compared to $17/head losses in 2008. But even in theU.S., not all producers are showing red ink. Fortunately, marketswere slowly recovering fromthe impact ofH1N1 by early June, but economists say the total cost to the U.S. industry byAugust could be as high as $500million. Unfortunately, producers are Clark unlikely to seemuch relief on the cost side,with feed costs expected to remain high and volatile through much of the year. Yet despite the near-termbearish outlook, profitability is expected to finally return sometime next year, as production is brought into linewith demand. While times are hard formany producers inmany countries, there are bright spots in particular for consumable products, and certain geographicmarkets. InAustralia, for example, pork producers have just had their best year ever. At the same time the U.S. and the European Union are undergoing a cutback in production, relatively less maturemarkets are growing to reduce their dependence on importing pork or increase their ability to export pork in the coming years. Pig Internationalmaintains an exclusive database of breeding sow numbers in allmajor pork producing countries of theworld. By our calculation, Russia increased bymore than 4%during 2008 and Vietnam rose by over 1%. Chinese government policies are promoting increased productionwith another expected in 2009. The Chinese government’s plan is to stockpile pork reserves, and Russia is set to increase pork production by least 200,000 metric tons per year through 2012 to complete import substitution in the domestic porkmarket. AM
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