Pork Production Up, Consumption Down, Exports Down — Economics 101

The USDA?s Economic Research Service (ERS) has released its latest figures supporting the December Livestock, Dairy and Poultry Outlook forecasts. Swine producers may be receiving more sow’s ears than silk purses under the Christmas tree in 2006.

The table below compares annual production and market data from 2001 to 2006. As you can see from the chart, pork production has exhibited a steady increase from year to year, up 110% since 2001. During this same timeframe, pork exports have increased almost 180%. Domestic pork consumption, however, has continued to decline during much of the forecast period and is predicted to be at best stable through 2006.

Simple economics would suggest that increasing supply and decreasing demand would result in declining prices for producers. Fortunately, the export market has contributed significantly to maintaining the relatively high hog prices enjoyed by producers during this period. This trend may, however, be coming to a close. Pork exports increased significantly following the dramatic decline in beef exports in 2004 in response to the finding of BSE in the US. With foreign markets now reopening to beef, pork prices on the Chicago Merchantile Exchange fell in December amidst fears of declining exports. The ERS estimates for exports in 2006 predict the smallest increase in pork exports since 2002. Also, the ERS prediction for beef exports in 2006 is likely underestimated now that Japan has reopened its market and South Korea is likely to follow suit.

Meat and Poultry Forecast Data (USDA, ERS)

Sources:

USDA, ERS

Chicago Merchantile Exchange