Summary - High grain prices and BSE have had conflicting impacts on world hog and pork production in 1996. Higher feed costs caused many countries, including China and the United States, to reduce inventories. BSE mainly affected the EU countries by increasing pork consumption. Prospects for 1997 show an improvement in inventories as feed costs moderate and prices remain relatively firm.
World hog inventories began 1996 at a record level of 761.3 million head, an increase of 3 percent over 1995. However, high grain prices throughout the year have caused inventories to contract, bringing beginning inventory in 1997 down 7 percent, its lowest level since 1992. Contraction took place in Mexico (8 percent), Russia (8 percent), China (7 percent), Germany (4 percent), Canada (2 percent), Japan (2 percent), and the United States (1 percent). With feed prices moderating, ending inventory in 1997 is forecast to increase 2 percent to 724.8 million head.
World pork consumption is expected to increase slightly in 1996 to 69.3 million metric tons, mainly due to a switch from beef to pork as a result of the BSE scare. Most of the growth occurred in the EU, the region of the world most affected by BSE. The largest consumption increases are seen in Italy (5 percent), the UK (4 percent), France (3 percent), and Germany (1 percent). Slight declines are expected in the remaining EU countries due mostly to higher consumer prices. EU pork consumption in 1997 is forecast to decline 1 percent as the beef market returns to near normal and consumer confidence in beef increases.
World pork exports continued to increase in 1996 but at a slower pace than in the past.
in 1996 are expected to be 5.4 million tons, up almost 1 percent over 1995. Increases are
expected in the United States (23 percent) and China (9 percent). Reductions in pork exports are
anticipated in the EU (14 percent), Taiwan (5 percent), and Canada (4 percent). The large
reduction in EU exports is due to a decline in third country exports as internal demand increased.
Prospects for 1997 are for world pork exports to increase 2 percent over 1996, on the strength of
higher U.S. and Canadian exports.
Graph: World Pork Exports, 1987 - 1997
Expansion of the U.S. pork sector has been set back slightly in 1996 as high corn prices forced some producers to reduce their herds. With most of the corn crop in the bin, prices have moderated but remain 40 percent above last year. Higher feed costs have been offset by higher producer prices, which have been in the mid-to-upper 50's for most of the year. Hog prices are expected to remain in the mid-50's through the third quarter of 1997.
Inventory on January 1, 1997, is forecast to decline 1 percent to 57.4 million head. This will be a reduction of 4 percent from the peak level in 1994. However, producers are indicating that they intend to farrow more sows in 1997, boosting the pig crop 5 percent, thereby increasing the number of hogs available for slaughter and inventory. Ending inventory in 1997 is expected to reach a record 60.5 million head.
Pork production in 1996 is expected to decline 4 percent to 7.8 million tons because of reduced farrowings and a smaller pig crop. This is the first decrease in pork production since 1993, when producer prices were at low levels. Production in 1997 is forecast to increase 2 percent to 8 million tons due to a 5-percent increase in the pig crop.
Despite lower production levels, pork exports in 1996 have increased and are expected to
430,000 tons, up 23 percent over 1995. This is a slow down in the rate of growth seen in recent
years, mainly due to reductions in exports to Russia and Korea. Russia, the number two
destination of U.S. pork in 1995, is expected to drop to number three as exports through July
were 24,278 tons, down 52 percent from the same time period in 1995. U.S. pork exports to
Korea were 6,381 tons, down 53 percent for the same period. Much of the reduction in exports
to these two countries has been a result of high U.S. pork prices.
Graph: U.S. Pork Imports Decline . . .
Graph: . . .As U.S. Pork Exports Trek Higher
Japan remains the number one destination for U.S. pork. Exports thus far in 1996 have reached 166,984 tons, an increase of 81 percent over the same period in 1995. Much of this large increase came as a result of the reduction in the Japanese gateprice on April 1, 1996. Huge stockpiles of frozen pork had been accumulated in bonded warehouses in January - March 1996, in anticipation of the reduction in gateprice. This tremendous increase in monthly imports threatened to trigger the snapback mechanism during the first quarter of the new fiscal year (April - June). Once April and May imports were tallied, the level of imports had exceeded the allowable limit under the safeguard, triggering the snapback mechanism on July 1. However, demand for pork in Japan is expected to continue to grow over the next several years.
Surprisingly, Canada is expected to become the second largest market for U.S. pork in 1996. Although the level of U.S. pork to Canada in no way compares with the level of U.S. pork imports from Canada, it is encouraging. During the first 7 months of 1996, the United States exported 24,990 tons of pork to Canada, an increase of 134 percent over the same period in 1995. If exports continue at that pace, U.S. exports could reach 43,000 tons by year's end. This trend is expected to continue into next year as Canada develops its export markets.
Another bright spot in the U.S. export picture this year is Mexico. Although Mexican pork imports are not expected to return to pre-devaluated peso levels, they have shown promise as consumer purchasing power increased. U.S. exports to Mexico through July 1996 were 17,135 tons, up nearly 1 percent from 1995. Prospects for the next several years indicate that Mexico is recovering from the 1994 peso devaluation. Import levels in 1997 are forecast to increase 83 percent over 1996, but remain 31 percent below 1994.
Japanese pork imports prior to the end of the snapback on March 31 were at the lowest levels seen in recent history. Imports shot up to 372,308 tons during April-June, the first quarter of the Japanese fiscal year, an increase of 162 percent over the same period in 1995. This large import volume triggered the snapback again on July 1, 1996. It will remain in effect until March 31, 1997. Imports since July 1 have been mainly fresh product, due to the continued shortage in Japanese table pork. With Japanese hog production forecast to decline 2 percent in 1997, imports of fresh pork are expected to remain strong.
The Japanese snapback mechanism has had a jarring effect on pork imports, particularly frozen pork. Large stockpiles of frozen pork were brought in during January-March and held in cold storage as importers anticipated the end of the Japanese fiscal year on March 31, 1996, and a lowering of the gateprice.
With the release of the large stockpile of frozen product from cold storage entering the market after April 1, importers feared that the snapback would be triggered earlier than last year and backed off on imports during May. However, the dye had already been cast in April and the snapback was announced, beginning on July 1. In June, importers again rushed to bring as much frozen product as possible to meet demand for the next 9 months.
The 24-percent increase in the gateprice triggered by the snapback has interrupted the orderly flow of imported pork into Japan. Frozen product, used for the manufacture of sausage and ham, is affected more than fresh pork. Therefore, manufacturers of processed products have become increasingly concerned over the snapback mechanism.
Graph: Japan's Snapback Throws Markets Into Confusion
The U.S.' share of the total Japanese pork market is increasing, mainly at the expense of Taiwan. Total market shares during 1995 were 46 percent for Taiwan, 23 percent for Denmark, and 19 percent for the United States. For the first 7 months of 1996, market shares were 35 percent, 24 percent, and 21 percent respectively. Of the two market segments, fresh/chilled and frozen, the United States has seen its largest increase occur within the frozen market, with market share more than doubling, from 6 percent in 1995 to 14 percent in the first 7 months of 1996. On the other hand, Taiwan and Denmark have seen their shares of this market decline from 46 percent in 1995 to 32 percent, and 34 percent to 30 percent, respectively, thus far in 1996. Canada has been holding its own versus last year.
Japanese fresh/chilled imports, through July 1996, increased 71 percent over last year. The U.S.' share of this market in 1996 has not seen the percentage increases of years past, but nonetheless continue to make steady inroads. For the first 7 months of this year, the United States' share was 47 percent, compared with 42 percent for the same period in 1995. Taiwan's share of the market thus far has declined 13 percent, from 53 percent to 46 percent. Should the U.S.' share of the fresh/chilled market continue to increase, the United States could displace Taiwan as Japan's number one supplier of table pork this year.
Despite the vagaries of the snapback mechanism, prospects for the remainder of 1996 and beyond appear to be favorable. Japanese pork imports in 1996 are expected to decline 1 percent from 1995, to 822,000 tons. Imports in 1997 are forecast to reach 857,000 tons, an increase of 4 percent over 1996. Demand for fresh/chilled pork should continue as shortfalls in the domestic market will have to be filled.
Hog expansion in Canada continued in 1996 but at a slower pace than seen in 1995. Hog inventory is expected to have peaked in 1996 at 12.0 million head, an increase of 8 percent over 1995. A 2 percent decline is expected by January 1997 as higher grain prices and strong demand for hogs in the United States have prompted Canadian farmers to reduce their herds. A slight recovery is forecast for the latter half of 1997 as grain prices stabilize.
The 3-5 year outlook is for increased hog production in Canada. Expansion is expected to continue in Manitoba and Alberta, due mainly to the elimination of federal grain freight subsidies and investment in new plants. Inventory expansion is expected to become more pronounced as grain prices moderate and create a greater incentive to market grain through livestock. Hog expansion in eastern Canada is limited, particularly in Quebec, where environmental regulations prohibit large, integrated facilities. Ontario pork producers are also disadvantaged by their small herds and limited land for expansion. Ontario's producers, however, have benefitted from the export of hogs to the U.S. market and the bidding competition between local and U.S. packers.
Graph: Canadian Hog Numbers
Exports of live hogs from Canada have more than doubled since the early 1990's. In 1995, exports to the United States reached 1.7 million head, an increase of 91 percent over the previous year. Exports in 1996 are estimated at 2.6 million head, an increase of 49 percent over last year. These major increases have been a result of increased pork demand worldwide and favorable prices in the United States. Expectations for live exports in 1997 call for a 15 percent decline. Many industry observers believe that more hogs will remain in Canada as new slaughter facilities are expected to begin operation and the expansion of existing facilities come on line in the west, sometime in the next 2-3 years.
Pork exports in 1996 have declined due largely to the shortage of hogs available for slaughter caused by the surge in live exports to the United States. Exports are forecast to reach 340,000 tons in 1996, a decrease of 4 percent from 1995. Most of the decline is due to reduced shipments to the United States. Canadian exports to Japan through July are up 79 percent over the same period last year.
Canadian pork imports are expected to increase in 1996 to 50,000 tons, up 85 percent from 1995. The dramatic increase is due to a change in the export strategy of Canadian packers, who are most interested in supplying the export market and importing U.S. pork for further processing. Virtually all of Canada's imports come from the United States. Pork imports in 1997 are forecast to remain near the 1996 level.
The Russian pork sector continued to stagnate in 1996 as swine inventories are expected to
21 million head by the end of the year, down from 35.4 million in 1992. Decreased government
support, higher feed prices, and a reduction in consumer purchasing power have all contributed
to the declining financial state of hog farmers. Pork production in 1996 is expected to reach 2
million tons, a decrease of 8 percent. Prospects for 1997 are not much better as pork production
is forecast to fall again, in spite of slightly higher producer prices.
Graph: Russian Hog Inventories Continue to Fall
Pork continues to be the most expensive meat in Russia, exceeding beef prices by 15-20 percent and poultry prices by 25-30 percent as of June 1996. As a result of declining pork production, imports have increased significantly over the last 2 years, to reach a record 545,000 tons in 1996, an increase of 20 percent over 1995. Pork imports in 1997 are forecast to increase again as pork production will not be able to meet domestic demand. Although Russian pork imports are increasing, the U.S.' share of the Russian market has declined in 1996, due to high U.S. prices. U.S. pork export performance thus far in 1996 has not been what was expected earlier in the year. Total U.S. pork exports to Russia are presently at 24,277 tons, down 52 percent from 1995. Prospects for 1997 are expected to improve, particularly if U.S. pork prices decline. China continues to be the leading supplier of pork imports, supplying over 30 percent of Russia's total import needs.
The economic recovery in Mexico seems to have escaped the hog industry in 1996. High feed prices and low productivity have hampered hog inventories, particularly in the backyard operations, the largest segment of the industry. Hog inventories in 1996 are estimated at 11.1 million head, a decrease of 11 percent over last year. A further reduction of 8 percent is expected in 1997 as farmers cull sows without replacing them. An increase may be seen in the vertically integrated segment of the industry due to an increase in consumer purchasing power in 1997, caused by the expected economic recovery. Vertically integrated facilities, the smallest segment of the industry, have been able to reduce their costs, and increase efficiency and productivity.
Mexican pork imports are forecast to reach 30,000 tons in 1996, a reduction of 17 percent over 1995. The United States is expected to continue to supply the majority of Mexican imports during 1996 and beyond. Typically, the United States supplies between 75 and 90 percent of total Mexican imports, followed by Canada. Imports in 1997 are expected to increase to 55,000 tons, up 83 percent from 1996.
U.S. pork exports to Mexico for the first 7 months of 1996 increased 1 percent over the same
period in 1995. Total U.S. exports to Mexico in 1995 were 28,507 tons. If Mexico's economic
recovery continues, total U.S. pork exports could exceed last year's level. Prospects for 1997 are
favorable, barring any unforseen change in the Mexican economic condition.
Graph: U.S. Pork Exports to Mexico
Hog slaughter in Taiwan is expected to reach 14.6 million head in 1996, an increase of 3 percent over 1995 and a new record. High hog prices and good profits are the major reasons for this increase. Prospects are less favorable for 1997 as slaughter is forecast to only increase 1 percent. The decline in the rate of growth is attributed to a mysterious disease which results in a low survival rate among piglets. In spite of this small setback, continued emphasis is being placed on hog production by the Taiwanese government.
Taiwanese pork exports are expected to decline 5 percent in 1996, reaching only 362,000
Virtually all of Taiwan's pork exports go to Japan, where prices have generally been more
favorable. However, higher domestic prices, caused by a reduction in the pig crop, and the return
of the Japanese snapback mechanism on July 1, have prompted producers to concentrate on the
local market. Prospects for 1997 are not expected to improve as exports are forecast at 360,000
tons, down almost 1 percent from 1996.
Graph: Taiwan's Share of the Japanese Market Continues to Shrink
Taiwanese pork imports have continued to increase over their 1995 level and are expected to reach 13,000 tons, an increase of 160 percent. This is mainly because of high domestic prices but can also be attributed to increased interest in supplying the lucrative Japanese market, where prices are higher. U.S. pork exports to Taiwan thus far this year total 10,822 tons, a 4-fold increase over 1995. If Taiwan continues to import at its present level, U.S. exports could reach almost 19,000 tons by the end of 1996. Pork imports for 1997 are forecast to increase 15 percent as prices are not expected to moderate in the near future.
Strong consumer demand for pork, due partly to lower demand for beef in light of the BSE
has led to higher prices and inventory levels in 1996. Herd expansion is not expected to continue
in 1997 as farmers begin to liquidate their inventories in anticipation of liberalization of the
frozen pork market next July and increased foreign competition. Beginning inventories in 1997
are expected to be 7 million head, up 8 percent from 1996. Conditions indicate that inventory
will decline 6 percent by the end of 1997.
Graph: Growth in Korean Demand Fuels Increased Imports
This year's increase in inventory resulted in a record production of 877,000 tons of pork, leading to fewer imports. Pork imports in 1996 are expected to be 45,000 tons, down 15 percent from 1995. Although this reduction is expected, the import quota for 1996 has been increased twice as Korean producers are unable to meet domestic demand at prices consumers are willing to pay. In 1997, pork imports are forecast to increase 67 percent, following the July 1, 1997 liberalization of the frozen market. The U.S.'s share of the 1996 market during January-May has fallen from 24 percent in 1995 to 16 percent as U.S. packers have had difficulty meeting certain product specifications, namely for frozen pork bellies. According to industry sources, Danish and Canadian packers, typically smaller operations than U.S. packers, have been better able to satisfy the requirements of Korean pork importers.
One area that is currently being developed in Korea is the chilled market. Several factors have been cited as troubling in this otherwise lucrative market: (1) smaller price difference between imported and domestic product; (2) a Korean cuisine that does not put high priority on premium cuts; and (3) a market that continues to focus on frozen product. However, the future is looking brighter. The first container of chilled pork cleared customs on September 18, with no apparent problems. If all continues to go well, industry observers expect to see 1-2 containers being imported on a bi-weekly basis. The fresh market is expected to grow as the market liberalizes, the Korean diet becomes more westernized, and consumers become more accustomed to chilled product.
The rate of growth in the Chinese pork sector is expected to slow from 1996 into 1997 as farmers are squeezed by higher grain prices and a desire by the Chinese government for producers to switch from grain-fed animal production to grass-fed production. Frozen pork stocks are building in key pork producing provinces, with no immediate outlet. Inventories in 1997 are forecast at 409 million head, a decrease of 7 percent over 1996. Assuming a price recovery, inventory could increase 3 percent but would not reach the record level of 441 million in 1996.
Pork continues to be a main staple of the Chinese diet. However, the Chinese government is
encouraging a shift to beef and poultry as part of its grain conservancy policy. Pork consumption
is expected to hit a record level in 1996 of 36 million tons, a slight increase over 1995. The
outlook for 1997 is for lower pork consumption.
Graph: China: Inventories and Consumption
The effect of Bovine Spongiform Encephalopathy (BSE) on the EU pork sector has been significant in 1996. Consumers, concerned with the possible consumption of tainted beef, have switched to pork as well as poultry, in an effort to safeguard their health. Pork consumption has risen in most EU countries, particularly in Italy (5 percent), the UK (4 percent), and France (3 percent). The increase in pork demand has in turn pushed producer prices up, prompting an increase in hog inventories. These trends are expected to continue in the near-term.
Much of the inventory decline in recent years has been in Germany, Italy, and the United Kingdom due to low producer prices. Hog inventories in 1996 are down in the United Kingdom (8 percent), Germany (4 percent), and Spain (4 percent), with a slight increase (less than 1 percent) seen in the Netherlands. A very small upswing in hog inventory is expected in 1997 as increases in the United Kingdom (4 percent), Denmark (2 percent), Spain (2 percent), and France (1 percent) will more than offset a decline in Germany (4 percent).
The beginning inventory for Denmark in 1996 fell 1 percent to 10.7 million head, but is forecast to increase 2 percent to 10.9 million in 1997. Slightly higher pork consumption EU-wide as a result of the BSE crisis and the recent declines in production have resulted in higher prices paid to producers year-over-year. The improved market situation has prompted an increase in the construction of production facilities in Denmark. At this time, it is not clear whether this is new expansion or just renovation of existing facilities.
Danish pork trade with other EU countries has continued to increase in 1996 and is expected to total 1.6 million tons, up 6 percent from 1995. An increase of 3 percent is forecast in 1997. External trade has continued to decline and is expected to only reach 380,000 tons in 1996. Just two years ago, Denmark exported over 40 percent of its pork outside the EU. In 1996, it will export only 30 percent. Prospects for 1997 are for a continuation of this trend. Much of the loss in overseas markets for Denmark have been in Japan. In addition, Denmark is expected to continue to lose market share in the United States and Poland. Danish exports to the United States have been trending downwards over the last 5-7 years and are expected to reach a 15 year low in 1996 of approximately 130,000 tons. The recent declines have been a result of the dollar-krone exchange rate and competition from domestic suppliers, a trend that is expected to continue in the next several years.
Hog inventories in Germany have been declining throughout the 1990's as farmers struggle to maintain their competitiveness vis-a-vis their EU counterparts. The 1996 beginning inventory declined 4 percent to 23.7 million head, with a further reduction of 4 percent forecast for the January 1997 inventory. Low profitability in the German hog industry is mainly due to structural disadvantages and inefficiencies. Hog production is less concentrated in Germany than in other EU countries, where the average number of hogs per farm is near 600 head compared to 133 head in Germany.
An increase in hog and pork production in Germany is not expected in the near future, in spite of improved producer prices and increased consumption. The increased demand for pork is most likely to be met by pork imports. In recent years, shortfalls in pork production have been met by increased imports of slaughter-weight hogs from Denmark and the Netherlands. However, this is not expected to be the case over the next several years as pork consumption in these countries is forecast to increase as well.
A slight decline in French beginning hog inventories, totaling 14.5 million head, was seen in 1996. Decreased live hog imports and an increase in slaughter in 1995 were the major causes for a lower inventory. A stable sow inventory and increased pig crop will help boost total hog inventory and slaughter through 1997. Pork consumption in 1996 and 1997 is forecast to increase 3 percent and 1 percent, respectively, mainly as a result of the BSE crisis. French meat analysts expect that the decrease in beef consumption over the next several years will be partially offset by an increase in pork consumption. Total pork exports are expected to decrease 9 percent to 460,000 tons, mainly on reduced external EU trade. This is a result of the decrease in export refunds to non-EU countries. A small increase is forecast in 1997 as exports to EU countries will increase due to higher consumption rates in neighboring countries.
With strong EU pork prices and reduced EU pork exports outside the EU, market opportunities exist for U.S. pork. First, the EU is expected to continue to reduce its pork exports to third countries, such as Japan. Opportunities for U.S. pork in the EU have been hampered by onerous EU slaughterhouse requirements. The U.S. government continues to negotiate with the EU on more workable requirements that will facilitate U.S. pork exports in the future. To date, the EU is only a minor market for U.S. pork, taking in 2,404 tons in 1995, and 1,042 tons during January-July 1996.
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Last modified:Friday, 22-Nov-1996