The bankruptcy of Pilgrims Pride and downturn in poultry numbers should be positive for pork demand, pork prices and hog prices in 2009, according to Steve Meyer, Paragon Economics. Meyer thinks the degree to which the pork industry will benefit will depend primarily on the duration of the ongoing reductions in poultry production. “I don’t see how their severity can get much greater,” he says.
Meyer feels that it’s obvious pork exports will not grow at the same pace as in 2008 and says that the real question is whether pork exports will see growth at all.
Recent developments regarding pork exports have been both good and bad news. The announcement that Russia would double the pork import quota in 2009 is very positive. However, Mexico’s announcement to disallow shipments in combo containers and force importers to bring in only boxed product is a negative. Combos are cardboard containers that are roughly 4 feet x 4 feet x 4 feet mounted on pallets.
The export shipment situation with Mexico is troublesome to the pork industry. “Some sources estimate that 70 percent or more of our products going south have been shipped in combos,” explains Meyer. Mexico’s concern is that they cannot effectively inspect product at the bottom of these large boxes and that importers may be hiding substandard product in the bottom or center of the boxes.
A meeting scheduled with Mexican officials has been postponed. Meanwhile, the restriction is scheduled to go into effect at the end of the month and U.S. exporters and producer organizations are asking for an extension to allow time to negotiate the issue.
Finally, the value of the U.S. dollar will continue to be a factor in export markets, although its magnitude will rise and fall. Historically, pork demand has not suffered severely in recessions. Due to higher restaurant sales of beef and chicken, those species tend to be more adversely affected due to declining restaurant sales. The American Restaurant Association reported that restaurant traffic reached an all-time low in November.
Consumption of all three proteins have declined. The University of Missouri’s demand indexes steadily declined for beef, pork and chicken during 2008 and stood at -5.0 percent, -5.6 percent and -2.0 percent respectively.