First-half domestic pork demand strong

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The release of June pork and hog trade data fills in the remaining open data point in the pork-hogs balance sheet for the first half of 2013 (1H13), providing an opportunity to assess how the supply and demand dynamics of the first half of 2013 set up the U.S. pork sector for the second half.

Total 1H13 commercial slaughter was 54.651 million head versus 54.765 million head last year, a difference of 114,000 head, which implies a 0.21 percent yearover-year decline in first-half slaughter. This decline was largely due to one less slaughter day this year (127 weekdays) compared with last year (128 weekdays).

The fact that the one-less slaughter day in 1H13 “cost” total commercial slaughter only 114 thousand head—about a quarter of one day’s federally inspected slaughter—implies a stronger daily slaughter rate this year than in the same period a year ago. When adjusted for a 5-day slaughter week, the average daily 1H13 slaughter was 430 head per day, versus 428 head a year ago.

The stronger daily slaughter rate this year is reflected in higher average first-half live hog prices, and also indicates stronger year-over-year demand for pork products. Average 1H13 prices of 51-52 lean live equivalent hogs were $62.25 per cwt, almost 1 percent greater than average prices in the same period, a year earlier.

Stronger year-over-year first-half live hog prices were not sufficient to offset higher feed costs, and as a result most hog producers’ returns were negative in the first 6 months of this year. Iowa State University’s per head producer returns calculated for January- June of 2013 averaged -$21,67 (http://www.econ.iastate.edu/estimatedreturns/). First-half 2013 farm corn prices averaged about 11.4 percent greater than a year ago. Average 1H13 prices of 48 percent soybean meal were more than 20 percent greater than average prices in 1H12.

First-half commercial pork production was slightly less than 1 percent (0.71) below the same period of 2012, due to one less slaughter day in 1H13 and slightly lower average dressed weights. U.S. pork exports, however, were almost 11 percent below first-half 2012. Lower exports this year are attributable to lower shipments to Asia—China/Hong Kong, Japan, and South Korea in particular.

Lower 1H13 exports, together with slightly higher year-over-year pork imports, resulted in a larger quantity of pork for domestic consumption, or “disappearance”. With an almost 5-percent decline in pork ending stocks recorded at the end of June, disappearance in 1H13 was almost 4 percent greater than in the same period last year.

All else equal, larger year-over-year domestic pork supplies typically result in lower prices across the pork supply chain. That was not the case for average prices in 1H13, when prices of both live hogs and retail pork were slightly higher year-over-year. (Mandatory Price Reporting changes that went into effect for pork price reporting in April 2013 make year-over-year comparisons of wholesale pork prices impossible until next April).

Given very strong retail beef and chicken prices so far this year, it is likely that in response, consumers bought greater quantities of pork in 1H13. Consumers paid slightly higher retail pork prices—even when greater quantities pork products were available—compared with the same period in 2012.

Consumers paying higher prices for a larger quantity of pork suggests that domestic pork demand increased in 1H13. A summary table of key 1H13 statistics appears below.



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