Speculation that U.S. pork exports could be negatively impacted should Russia cut imports has led to a sharp decline in pork markets. Hog futures declined Thursday and Q4 hog futures declined nearly 500 points in the last two days.
Cash hog prices also have seen dramatic declines, which may be reason for even more concern than a potential reduction in Russian shipments. The IA/MN lean hog carcass closed Thursday afternoon at $70.73 per hundredweight, 20 percent lower than the high of Aug. 8.
There is no question that the U.S. pork industry is relying on exports to absorb an ever increasing portion of production. U.S. producers claimed significant profits between 2003 and 2007 in large part due to this expansion. Although feed costs absorbed many of those profits, and led to losses by U.S. pork producers, there is little question that financial losses would be much more severe had it not been for strong exports.
Global politics sometimes gets in the way, however, as is currently the case and may lead to a Russian cutback in U.S. pork imports. Producers are now also dependent on forces that shape global trade flows.
Overall pork exports in 2008 have accounted for 21.5 percent of all pork produced in the U.S. This increasing reliance on exports has increased the potential for profit but also the risk associated with it. Over time, this may lead to further consolidation and integration of the U.S. pork industry in order to derive greater efficiencies and better manage the increased risks.
Source: CME Group, ThePigSite.com