USDA Lowers Pork Production Forecasts for 2022

Meat Protein Production in 2022 Expected to Remain Below Year Ago Levels But Trade Flows Will Be Key For Domestic Availability.

USDA has been steadily downgrading its pork production forecasts for 2022, catching up with what’s happening in the market. Last September, USDA was forecasting pork output for 2022 at over 28 billion pounds, a forecast that reflected optimism about producer profitability and incentives for expansion. But hog inventory data has been far smaller than previously thought and producers have struggled with disease impacts in some regions. Sharply higher feed costs have also reduced production margins. Last week, USDA once again lowered its production forecast for 2022, this time by 65 million pounds and now pegging it at 27.330 billion pounds (carcass weight basis), 358 million pounds or 1.3% lower than the previous year. Higher imports and lower exports are expected to shore up domestic supplies, however and per capita domestic consumption is expected to be higher than the previous year. Will pork exports decline 300 million pounds or 4.3%? It’s probably a reasonable assumption with China absent from the US market but also a major wild card. We review the January export data in the next section.

Our current working assumption is that Mexico will remain a significant buyer of US pork. This will be even more so given escalating beef and chicken breast prices as well as restrictions on supplies of chicken and turkey from some major US poultry-producing states. As the chart on page 1 shows, chicken is by far the top meat protein produced at 44.7 billion pounds. The latest USDA forecast was revised down by 257 million pounds and output for this year is now up just 0.7% from the previous year. This reflects the still very slow supply growth as processors struggle with high feed costs and more importantly tight labor supplies. USDA forecasts do not account for impacts from Highly Pathogenic Avian Influenza. At this time commercial operations in three states (see table) have been affected, for a combined 741k birds. The outbreak has not had a major impact on broiler supplies considering that weekly slaughter is around 166 million head. But there is still some supply risk considering that HPAI has now spread to all four wild bird flyways.

USDA raised beef production forecasts for 2022. Beef production for this year is now forecast at 27.640 billion pounds, 195 million pounds higher than the forecast presented last month. USDA raised the forecast for beef production this year due to higher fed and non-fed slaughter. Indeed, the pace of beef cow herd liquidation has surprised many in the industry although it is understandable given drought pressures in the Southern Plains and some other key regions. But ultimately the increase in production today means even less supply in the pipeline in the next three years. Even with the increase in production, USDA is still forecasting beef output this year down 367 million pounds or 1.3% compared to a year ago. USDA has beef per capita consumption down 0.8% because of higher imports and lower exports. US beef imports have been indeed quite large to start the year due to more beef coming from Mexico, Brazil, and Central America. USDA is now forecasting beef exports to be down 147 million pounds or 4.3% in 2022. The argument for this is that high beef prices and global price inflation will negatively impact demand for beef. On the other hand, USDA may be underestimating Chinese beef demand, especially now that Argentina and Uruguay have slowed down exports to that market.

Export Update for Beef and Pork

Total pork exports in January were estimated at 510.2 million pounds, 95.8 million pounds or 15.8% lower than the same period a year ago. The reduction was entirely due to lower exports to China, which at 41.5 million pounds were 100.8 million pounds or 71% lower than the previous year. Pork imports in January were 108.8 million pounds, 27.6 million pounds or 34% higher than a year ago (see our discussion yesterday for this). Despite the decline in exports and higher imports, pork supply in the domestic market was down, nonetheless. Total pork production in January was 2.280 billion pounds, 197 million pounds or 8% lower than the previous year. When adjusting for the change in trade, domestic supply was down 70.7 million pounds or 3.6%.

While the US is a net pork exporter, we continue to import a significant number of pigs, mostly feeder pigs from Canada. Total hog imports from Canada in January were 515k head, 2.8% more than the previous year. Almost 60% of the pigs imported from Canada in January were under 7kg (15.4 lb.). Imports of feeder pigs in January were up 9.4% while imports of hogs over 110 lb. were down 26%.

Total beef exports in January were estimated at 287.6 million pounds, 41.6 million pounds or 16.9% higher than the previous year. China continues to be a major driver of this growth as it emerged from near zero (due to the BSE ban) to the third-largest market for US beef last year. In January US beef exports to China were 48.3 million pounds on a carcass weight basis, more than double last year’s levels and accounting for 62% of the overall increase. US commercial beef production in January was 2.266 billion pounds, which means China accounted for 2.1% of the US output. US exports in January represented 12.7% of US production. However, the increase in exports did not limit availability in the domestic market. That’s because we saw a big surge in beef imports during that month. USDA estimated total beef imports in January at 351.9 million pounds, an increase of 57% compared to January of 2021.

Why the big jump in imports and will this be sustained for the rest of the year?

The main reason for the big increase in imports was Brazil. Total US imports from this country in January were almost 100 million pounds, a fivefold increase compared to January 2021. The increase in Brazilian beef imports accounted for 2/3 of the overall beef import growth. Part of the reason for the jump was due to some Brazilian beef that came in last year but due to quota limitations had to be placed in bonded warehouses and was released into commerce in January. Brazil faces a relatively low threshold of around 65k MT in terms of quota. This brings us to the second point. We do not see Brazil sustaining this level of export volume for all of 2022. Indeed, at this time more than 70% of the quota available to Brazil has been filled and it will likely be at 100% by sometime in April. But imports from other markets are up as well and most of them do not have a quota. For instance, imports from Mexico in January were 65.5 million pounds, 25.1 million pounds or 62% higher than a year ago. Imports from Canada and Nicaragua, also countries without a quota, were up 8.9 million pounds and 6.9 million pounds, respectively.

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