Spend Matters welcomes this guest post from Emma Jayne Smith, Market Analyst at Mintec.
U.S. pork prices fell to a 7-year low at the start of August, down 16% month-over-month and down 8% year-over-year, driven by record high production volumes in 2016. Why did the market trend make a U-turn from the start of the year when prices were on the rise?
Although pork production had risen in late 2015, high export demand, especially from China, led to increased pork prices in the U.S., which continued until June 2016. In Q1 2016, U.S. pork exports increased 2% y-o-y, reaching 534,321 tonnes. Despite this, Mexico, the largest market for U.S. pork, saw exports in Q1 down 9% y-o-y, totalling 159,947 tonnes, owing to the strong U.S. dollar against the Mexican peso.
The largest change in 2016 against 2015 has been the surge in exports to China and Japan, increasing 83% y-o-y in Q1 2016. The volume of exports from the U.S. to China has increased as the Chinese accredited 16 processing plants in the U.S. at the end of 2015 as part of its ractopamine-free adherence scheme. The U.S. is the second largest global exporter of pork. In 2016 U.S. exports are forecast to rise 5% y-o-y, totalling 2.36 million tonnes. The rise in exports is mainly due to the strong demand from China and other key Asian markets.
Prices then started to fall in June 2016, driven by higher production and lower demand, as exports to Mexico continued to decline. U.S. pork production in 2016 is forecast to rise 2% y-o-y, totalling 11.33 million tonnes, reaching the highest level of pork production the U.S. has ever seen. Expansions in pig crops, higher carcass weights and low feed prices are all contributing factors to the production increase. All of these factors have contributed to prices driving to a seven-year low.
U.S. prices tend to dip in April and again around October in line with seasonal peaks in pig slaughtering. Could this be the start of prices plummeting, and could they end up lower than those seen in 2009?