Falling Exports Vs. Falling Supply: Which Will Win?

     The total demand for US Pork can be conveniently broken down into two components: domestic demand plus net exports.  Net exports is the excess of exports over imports of pork for the US.  We seem to know that US production of pork will be falling in 2009.  I say seem to know since this is based on projections by USDA (Hogs and Pigs Report).  What we do not know is if the projections are correct (what is their error variance) and what will happen to productivity increases to offset this decline in farrowing intentions from last fall.  We can surmise that the sows leaving the industry are the poorest performing ones (least productive) and that productivity gains from the remaining farms is likely to rise.

     We also know that net exports are very likely to fall this year (compared to the record setting levels of 2008) but we do not know by how much.  China came into the market in a huge way last year due to their catastrophic pig health disaster and the big earthquake which killed a lot of additional pigs.  They vaulted to second place just behind Japan in taking US exports.  They seem, however, to be recovering from the disasters some and their personal income, especially among those "new demanders for pork" (the Walmart Factory workers) will take a big hit this year with tens of thousands of manufacturing plants closing.  Japan, Mexico, Russia and Korea are heading south big time in forecasted year over year GDP so national income is falling there too and with the exception of Japan, our currency has appreciated against the importers substantially making US pork more expensive. 

     Comparing January 2008 vs February 2009 monthly average exchange rates to the US dollar we find it took about 940 Won (Korea) in 2008 to buy a buck, now 1385, 10.9 Pesos (Mex) to buy a buck, 14.5 now, 107 Yen (Japan) to buy the buck, now about 89 (Good news at least with our largest importer!), for the Russian currency there is the new and the old but suffice it to say that we are an all time record devaluing of the current Russian currency against the dollar. Canada fell sharply too as we were trading about par with the Canadian dollar in January 2008 and now it takes about 1.24 Canadian to buy the buck.  Mark China as about the same as last year.  Their currency has appreciated a tiny bit but probably not enough to really impact purchases in and of itself.

     Again, we are facing a projection by USDA that net exports of US pork will be about 14% down this year from 2009.  One thing you should consider in all of this, and something that I have mentioned here before, is that all of the countries to which we export pork are themselves caught up in the global recession and are undergoing various degrees of contraction and demand erosion.  Keep in mind that only seven countries account for over two-thirds of all imported pork regardless of which country it originates in.  Supply down (maybe; but down more maybe in broilers and beef) and demand down both here and abroad (probably). Which one (supply or demand) down faster will determine the profit outcome for US pork producers this year.