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CME: Pork and Poultry Exports to Russia

by 5m Editor
28 August 2008, at 11:34am

US - CME's Daily Livestock Report for 27th August 2008.

A big chill permeated livestock markets on Wednesday following rumors that Russia was preparing to reduce the number of permits for pork and poultry products from the US. While Russian authorities and representatives from the US poultry industry had been discussing possible cuts in imports of US poultry products, the reductions now appear to be on a fast track following the rising tensions over the war in Georgia and the Russian recognition of two Georgian breakaway provinces as independent states.

The fact that the cut in permits would involve not just poultry but also pork seemed to catch the market by surprise. Most hog futures declined the permissible 300 point daily limit and cattle futures also were down sharply on concern than lower prices for competing meats would pressure beef prices going forward.

It is yet too early to know what impact a reduction in Russian purchases of US pork and poultry products will have on markets in 2009. We don’t know how big the cuts will be and when will they go into effect. There is no question, however, that Russia has become a key market for US meat products in recent years. As the chart to the left shows, monthly exports of pork products to Russia have increased from less than 5 million pounds a month in 2005 to around 40 million pounds in the first half of 2008. The fact that Russia is a large buyer of pork trimmings as well as pork variety meats has been a boon for pork packers, especially in recent months when the price of pork trimmings hit all time record levels. Indeed, lean trim prices were trading over the price of ham in some cases. Even more problematic for the meat complex, however, is the outlook for US poultry exports to Russia.

There is a fear that a significant decline in poultry exports to that country would depress prices for dark meats at a time when the industry is already pressured by high feed costs and negative margins. Limited access to the Russian poultry market would certainly require even more significant cutbacks in poultry production. In the short term, however, poultry prices would suffer and in the process pressuring prices for beef and pork. USDA currently expects US pork exports in 2008 to reach 5.406 billion pounds, or 23% of overall US pork production. If the Russian action is swift and dramatic, and it can be, it would remove about 80-100 million from projected Q4 exports. This would be the equivalent of half a million more hogs coming to market than previously expected. It’s a big number considering we are looking at new all time record slaughter this fall.

5m Editor