Japan’s Crisis Raises Uncertainty 

Last month’s disaster in Japan caused by the earthquake and tsunami has created problems for the U.S. livestock industry.  Japan is the largest foreign buyer of U.S. pork and the third-largest buyer of U.S. beef.  In 2010, 5.7 percent of U.S. pork production and 1.3 percent of U.S. beef were shipped to Japan.  The dollar value of Japanese purchases is even higher than their share of tonnage. 

Following the earthquake, U.S. livestock futures initially dropped over concerns that the Japanese infrastructure would not be able to handle the normal volume of meat imports. Livestock futures recovered as concern increased that Japanese food production would be negatively impacted by the quake. In the end, Japan’s disaster could add pressure to already tight global food supplies. 

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Sorting Through Cycles for Clues

The hog business has always been cyclical, and cycles make it easier to predict the future.  The challenge today is to determine how the current cycle compares to past ones. Since 2007, the current average monthly profit-per-hog-marketed has closely resembled the pattern for the period between 1997 to 2002. That pattern implies that pork producers will enjoy profits of $20 to $40 per head through October, then see red ink this winter. 

The outlook for 2012 is not that bright if we stay on the current path. Again, looking back at 2002, hog slaughter was up 2.3 percent from the year before.  There are few signs that 2012 hog slaughter will be up significantly from this year’s levels.  

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Feed Costs will Limit Expansion

Once adjusted for imports from Canada, sow slaughter is a useful indicator of future pork production.  Most weeks, slightly less than 1 percent of the U.S. sow herd is sent to slaughter. The huge financial losses of 2008 and 2009 caused an increase in 2009 sow slaughter.

Sow slaughter slowed last summer but picked up again in the fall.  During the fourth quarter of 2010 and the first quarter of 2011, sow slaughter remained at a high level.  The prices for hog futures contracts have been high but so have corn futures.  I do not expect the sow herd to grow until hog producers feel more comfortable about feed costs.

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