Exports Keep Pork Supplies Tight
U.S. pork exports continue to rise, with January exceeding half a billion pounds, carcass-weight equivalent, for only the second month in history. Also, for the third time ever, we exported more than 25 percent of a month’s total pork production.

The United States imported 66 million pounds of pork in January, or 3.3 percent of production. That’s the fifth lowest percentage so far this century. Expanding exports and declining imports mean that the U.S. pork industry can expand without increasing domestic supplies. Pork production in 2011 was up 1.4 percent, but reduced imports and increased exports dropped the domestic supply by 3.7 percent. The tight U.S. pork supply gave us record hog prices in 2011 and hopefully will again this year.

Gas Prices Weigh on Meat Prices
Domestic per capita meat and poultry supplies are expected to drop more than 2.5 percent in 2012, so meat prices should remain at record high levels, if meat demand remains steady. Unfortunately, gasoline prices are high and climbing. First-quarter 2012 gasoline prices were the highest ever for that period.

The correlation is not perfect, but generally, high gas prices are negative for meat demand. When the cost of filling the tank goes up, many consumers find savings elsewhere, such as their grocery bills. Another worrisome thing about high fuel prices is that five of the last six recessions were preceded by a sustained rise in oil prices. A recession this year or next would be a disaster.

Pork Cutout/Hog Price Ratio Adjusts
The pork cutout is the composite value of the wholesale meat cuts from 100 pounds of carcass. Hog prices vary with the cutout value. Typically, on a carcass-weight basis hog prices average 92 percent of the pork cutout value. For much of the first half of 2009, hog prices exceeded the pork cutout. It’s happening again, as the average basecarcass price for hogs exceeded the average pork cutout value in March.

Packer margins are tight. Sooner or later, packers will slow slaughter rates enough to restore the normal price relationship and that will likely mean lower hog prices. If we continue the long-term hog price average at 92 percent of cutout value, then several weeks with a carcass-hog price/cutout-value ratio in the upper $80s lies ahead.