According to the USDA's Livestock, Dairy and Poultry report, ending stocks of pork cuts increased to 631 million pounds in September, an increase of 28.5 percent over a year earlier. September’s ending stocks increase is the 21st consecutive year-over-year increase in monthly pork ending stocks since December 2010. The jump in September ending stocks follows strong positive year-over-year stocks changes that have averaged almost 22 percent since May.
There is some anecdotal evidence suggesting that recent stocks accumulation foreshadows increases in exports. It is more likely, however, that large pork ending stocks in 2012 have been a consequence of low product prices resulting from production increases and slower growth in exports and domestic pork demand. The figure below shows the USDA-estimated pork carcass cutout, a series calculated from wholesale pork prices.
Lower average wholesale pork prices in the first three quarters of 2012 reflect 2 percent larger commercial pork production. Pork exports for 2012 are expected to increase about 5 percent, with most of the increase taking place in the first half of this year with large shipments to China. Second-half pork exports are expected to be lower than a year ago. With fourth-quarter production expected to be 1 percent higher and slowing growth in exports, wholesale prices are likely to remain under pressure.
When 2012 finishes, it is likely that production increases and modest export growth will have left more pork available for domestic consumption. This is a function of stock holding behavior, or the result of weak demand and higher production mentioned earlier. Total 2012 pork disappearance is expected to increase 0.6 percent, the first year-over-year increase since 2009. All else equal, increases in pork available for domestic consumption typically push product prices lower.