Demand is worth your attention
The final numbers of USDA’s September Hogs & Pigs Report came in slightly above traders’ pre-report estimates, so market prices could have a somewhat bearish reaction in the near term. In the longer term analysts say the fact that pork producers are holding animal numbers stable, but continuing to make significant productivity gains (averaging a record 10.1 pigs per litter), means about 2 percent more pork will be on the market next year. The question then is, will domestic and world demand hold up?
“There was the outside hope that producers would cut numbers more than the trade expected,” says Altin Kalo, economist with Steiner Consulting, Manchester, N.H. “While the numbers were only about 0.5 percent higher than expected, they could be viewed a bit negatively given some of the outside market influences.”
Leading that list of influences are demand concerns. U.S. pork exports have been solid this year, but with the U.S. dollar gaining strength, it could temper 2012 sales. “Exports will have to accommodate 20 percent or so of next year’s production, so any hiccups could have significant impact on hog prices,” Kalo says. This year, exports are expected to claim 22 percent to 25 percent of total production.
Not only does a stronger dollar make it harder for global customers to buy U.S. products, “it means the global economy is slowing down,” he adds. “We expect 4.8 billion pounds of pork to go to the export market in 2012; it’s important that demand materializes, otherwise it goes to the domestic market.”
The outlook for the domestic market lends its own set of concerns. “I’d be worried about meat demand in general,” says Jim Robb, director of the Livestock Marketing Information Center in Lakewood, Colo. “We will continue to see tightening in beef demand and supply,” due to forced culling in drought-stricken herds. He points out that chicken also has cut numbers significantly.
“The (Hogs & Pigs) report shows that there’s not been a lot of adjustment on the pork producer side,” Robb adds. “We thought we’d see more softening in the breeding herd and farrowing numbers due to high corn prices.”
Nagging economic issues in the U.S. marketplace could cause problems for domestic meat demand. There is some concern about the country slipping into another recession. “Historically, during recessions consumers couldn’t do or buy many things, but people generally still ate well,” says Dale Durcholz, senior analyst, AgriVisor Services, Bloomington, Ill. But this time things are different. “The high structural unemployment is an issue and people with jobs are more concerned about keeping them.” It all sheds a negative cast on spending.
For the export market, he points to the fact that China’s currencies are still strong compared to the U.S. dollar, which could keep that country in the export market.