Pork Profit Maximizer – Food Service Edition

Highlights

US pork production next year is expected to increase by 656 million pounds. If all this supply goes to support higher export demand, we will likely see a net reduction in per capita availability in the domestic market and higher pork prices. The decline in per capita availability will depend greatly on a) how quickly ASF spreads in China and b) the elasticity of pork demand there. If US pork demand increases by 600 million pounds, 23% of the increase in global demand, it would imply a 10% increase in US pork exports next year. US per capita pork disappearance would decline 0.7% rather than increase 1.3% as currently forecast. The price response to changes in per capita disappearance is not linear. In 2014 per capita disappearance declined 2.1% and the cutout jumped 20.4%. We are currently expecting the pork cutout next year to increase 8% as supply growth slows down and Mexico drops tariffs on US pork. The additional export demand could cause cutout prices to increase an additional 10%. This would imply an average cutout next year of $87/cwt, with summer prices likely to be well above $100/cwt.