The recent speculation about export markets and the sharp reaction of futures to it highlighted a point that has become ever more prominent in recent years, namely the increasing reliance of the US pork industry on exports to clean up growing pork supplies.
There are clearly rewards in becoming a top supplier in the global marketplace. US producers reaped significant profits for an extended period of time between 2003 and 2007 in large part due to this expansion. While the rise in feed costs eroded many of those profits, there is little question that US producers would be in very dire straits this summer had it not been for strong exports. The risk, however, is one that other large world exporters know too well. Export markets tend to be fickle due to animal disease risk and political power plays. Producers no longer can manage their margins by managing their supplies. They are now also dependent on forces that shape global trade flows.
Steve Meyer and Len Steiner compared pork export data for the first half of 2008 with the same time period in 2003. Five year ago, US pork exports accounted for about 9% of overall US pork production and pork exports to Russia and China/Hong Kong accounted for about 0.5% of US pork production. In the first half of this year, exports to these two markets now account for almost 7.5% of TOTAL US PORK PRODUCTION and 34% of the 2.5 billion pounds of pork exported during this period. Overall pork exports in 2008 have accounted for 21.5% of all pork produced in the US. The increasing reliance on exports has increased the potential for profit but also the risk associated with it. Over time, we suspect this will lead to further consolidation and integration of the US pork industry in order to derive even greater efficiencies but also better manage the increased risks.
Source: Chicago Mercantile Exchange, Daily Livestock Report, August 28, 2008