U.S. hog farmers are poised to produce a record amount of pork at a time when exports are slumping the most in more than a decade, prolonging a global glut into a fifth consecutive year.
The 10.66 million metric tons produced will be the most since at least 1970, the U.S. Department of Agriculture estimates. Exports fell 14% in the first two months, the most for the period in government data since 2000. Futures may drop 20% to 72 cents a pound by the end of the year on the Chicago Mercantile Exchange, based on the median of nine trader and analyst estimates compiled by Bloomberg.
Demand for pork from the U.S., the biggest exporter, is weakening as importers from South Korea to Japan expand domestic output. Exports are also retreating as China and Russia, the largest buyers after Japan, curb purchases of meat produced with ractopamine, a feed additive used in the U.S. Farmers are expanding output because costs are dropping as grain prices tumble from records set during last year’s drought.
“It’s hard to be very bullish right now,” said Ron Plain, a livestock economist at the University of Missouri in Columbia who has studied the industry for about three decades. “2014 is likely to have more pork if the corn outlook turns out the way we expect it to.”
Hogs for settlement in June, the most widely held contract on the CME, declined 7.7% to 90.35 cents this year. The Standard & Poor’s GSCI Agriculture Index of eight commodities fell 5.8%, and the MSCI All-Country World Index of equities rose 4.6%. Treasuries returned 0.6%, a Bank of America Corp. index shows.
The U.S. hog herd reached 65.91 million head March 1, 1.5% more than a year earlier and the most for the date since 2008, USDA data show. The supply of breeding animals, an indication of future supply, was the most since 2009. Corn futures fell 25% in Chicago since reaching a record in August, as farmers prepare to plant the most acres since 1936.
Global pork production will rise 0.3% to an all-time high of 104.71 million tons this year, according to data from the USDA in Washington. Demand is estimated at 104.25 million tons, the highest level on record.
The U.S. shipped 820.8 million pounds (372,300 tons) in the first two months of 2013, USDA data show. Exports to China slumped 43%. The Asian nation said in February it would tighten import controls to ensure meat excluded ractopamine, used by some farmers to add lean muscle in livestock. The Chinese market remains open to U.S. pork, said Joe Schuele, a spokesman for the Denver-based U.S. Meat Export Federation.