U.S. Pork Exports Are Setting Up for a Tough Time in 2009 but Cross Your Fingers

     We are facing the first year-over-year decline in net exports since the U.S. industry became a net exporter in the mid 1990s.  Even with the potential prospect of fewer total pigs slaughtered in the U.S. in 2009, due to a potential decline in both U.S. production and imports of weaned pigs and finished animals from Canada, 2009 seems to be setting up to be a very tough year.  Here are the reasons for caution and why the spring futures prices may fall to meet the slogging cash prices.

     First, we now know that all of the major countries which are key importers of U.S. pork are facing substantial declines in GDP, declining land and home values, increased unemployment and in one case, the potential descent into political chaos. 

Japan is in a tailspin.  November industrial output fell over 8 percent from the previous month and over 16 percent from the same month last year.   The offical forecast for growth is none, zero for 2009 with home values declining rapidly, unemployment rising and a proposed stimulus package that has failed to finalize funding.  Korea is experiencing increased inflationary pressures and the demand for those cars and flat panel television screens are not real bright for 2009. 

Mexico is having a big-time war with its drug lords and the U.S. military has listed it (along with Pakistan) as having a significant chance of disintegrating into chaos in 2009, though I wouldn't cancel that planned vacation in Cancun just yet.  The Mexican Peso is deteriorating against the dollar and will make those hams much more expensive coming into the new year.  Industrial output has declined for the past several months and a lot of what Mexico produces, like cars and car parts for export, are headed straight down in the coming year.  We are keenly aware what oil prices have done in the last several months and guess what Mexico's biggest export item is? 

China moved up to number two last year in total demand for U.S. Pork in export but even the Chinese government is only forecasting 6 percent growth in 2009, the minimum needed to forestall political upheaval and less than half of its growth rate in 2007.  Thousands and thousands of factories are closing in the industrial areas of China due to the dramatic declines in western demand and the new labor laws which require severance pay for the newly unemployed.  Rather than face those kinds of cash drains, factories are closing and the owners are disappearing into the night stranding workers who have come from hundreds of miles to find work.

Russia, despite its wealth of natural resources and real strengths in human capital (scientists and engineers especially) is not competitive in manufacturing. The sale of oil and its dramatic revenue flows in early 2008 continued to crowd out investment in a more diversified product mix capability.  It faces double digit inflation, a continuation from 2008 in 2009, which is largely due to the fall of the ruble, read that as imports are getting more and more expensive.

Whether or not it happens, the forecast for 2009 in the U.S. is for the first reduction in percapita consumption of meat in more than a few decades.  It is hard to tell if that is due to economizing or that coupled with the aging boomer population that is gradually eating less meat and a minor uptick in partial and principled vegetarianism.  The COOL rules are flexible enough that most people (especially Canadians) believe that pigs will begin flowing again into the U.S. though admittedly, the total production will be less in North America, expect productivity gains to mute some of that.

Prospects for anything like a "V" shaped recession/recovery are beginning to fade.  Nothing will turn around until demand increases.  That won't happen until asset values stabilize and people begin to have a sense of where they are at financially.  Before that happens expect a lot of continued cautionary buying and entrenchment.  The U.S. led the world into this recession with a collapse of the financial markets but the rest of the world took the hit in manufacturing.  Lenders seem to be looking at buying discounted assets and existing loans (heavily discounted of course) rather than taking on new risks of any size at face value.

Let's hope for better but get braced for some less than ideal outcomes.