The US pork sector is expected to return to profitability again by next year, according to a report by Rabobank.
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Despite higher input prices keeping pork producers in the red for close to nine months, the report, “US Pork” predicts they are likely see profits again in 2009 with domestic demand “holding up well”.
“It has been suggested that the industry is in the middle of a perfect storm – excess hog supplies, record feed prices and initial concerns regarding the robustness of domestic demand,” said Fiona Boal, executive director of Rabobank’s Food & Agribusiness Research and Advisory (FAR) department.
“While the industry is undoubtedly being forced to adjust to a new, unique, and difficult, operating environment, a 1998-like collapse does not appear likely and those participants with the financial resources and management expertise to survive the next 12 to 18 months should enjoy renewed levels of profitability by the end of 2009,” said Boal.
The index for consumer-level demand, calculated by the University of Missouri, rose 2.5% in 2007 and was 0.2% higher than one year ago in the first quarter of 2008. Beef demand was down 3% and poultry demand up 3.2% over the first quarter.
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By GlobalData“These figures are consistent with an economy in a recession – lower beef demand, steady pork demand and higher chicken demand,” said Boal. “The “trading down” phenomenon appears to be at play with consumers shifting their protein expenditure away from beef to less expensive chicken.”
However, pork’s competitive pricing at the retail level is expected to continue through the summer months. Pork prices will be bolstered by higher chicken prices and will be sustained in the long term by constraints on cattle availability.
“It has been well documented that US pork exports have reached record levels for each of the last 16 years; an impressive feat for any industry. And pork exports are on pace to set new records in 2008,” added Boal.
