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Swine and Pork
Despite global economic woes, U.S. pork exports are forecast to increase 18 percent in 1998, due to low pork prices and large supplies. Exports are forecast to increase minimally in 1999 as excess production in competitor nations and dampened consumer demand overseas increases competition in foreign markets.
Pork production for the selected countries covered in this report is forecast to increase more than 3 percent in 1998 to 83.58 million tons, largely due to swine herd expansion in the United States, the European Union, and other major hog producing nations. There is no forecast for total 1999 production, as this publication does not include a 1999 forecast for China, which produces more than half of the world's hogs (refer to the article on China for further information).
Pork consumption is also forecast to increase 3 percent to 82.42 million tons in 1998. The United States and the European Union indicate the largest consumption gains, due to dampened export demand and excess supply. There is no forecast for total 1999 consumption due to incomplete data for China.
Pork imports in 1998 are forecast to remain level with last year at 2.04 million tons, as import growth in the United States, Hong Kong, and other countries is expected to offset lower imports in Russia, Korea, and Poland. Pork imports are forecast to increase 3 percent to 2.11 million tons in 1999, due to expected import growth in Hong Kong and Japan.
Pork exports are forecast to drop roughly 5 percent in 1998 to 2.57 million tons. A decline in exports from Taiwan, Eastern Europe, China, and Canada are expected to outweigh export gains from the United States and Brazil. With excess production in the major pork exporting nations and global economic woes, there will be increased competition and pressure to move product overseas in 1999.
The U.S. hog inventory continues to expand despite low hog prices. An abundant corn harvest this fall and cheap feed costs are helping to sustain growth. Structural change in the U.S. hog industry has put many producers in the position of having to expand hog numbers to efficiently use recently constructed facilities. Hence, while in the past such low hog prices would have brought on a contraction in inventories, today more operations continue to expand, notably contract operations. As a result, with U.S. hog prices forecast to average under $34/cwt in 1998, slaughter is set to increase 9 percent to nearly 100 million head. Hog prices are forecast to remain low in 1999, while slaughter climbs another 3 percent.
Due to low domestic hog prices, U.S. live hog exports are forecast jump 220 percent to 120,500 head in 1998, primarily to Mexico. However, exports are forecast to decline 30 percent next year to 85,000 head despite low hog prices because of the anticipated economic slowdown in Mexico. A Mexican anti-dumping petition against U.S. slaughter hogs could put additional pressure on hog exports. U.S. live hog imports are forecast to reach record levels in 1998 at more than 4 million head. Virtually all U.S. hog imports are from Canada, and the relative strength of the U.S. dollar and labor problems in the Canadian packing industry have encouraged the flow of hogs into the United States. While hog imports are forecast to remain high in 1999, they are projected to decline 14 percent in 1999 to 3.5 million head, as more hogs remain in Canada for slaughter.
U.S. pork exports are forecast to jump 18 percent in 1998 to 565,000 tons. Low U.S. pork prices and large supplies have enabled the United States to boost exports, despite economic woes in major import markets. U.S. pork exports through August 1998 were ahead of last year's pace for five of the six largest markets, with Korea being the exception, and total exports were 32 percent ahead of last year at 271,010 tons (PWE).
Japan remains the leading market for U.S. pork, accounting for 43 percent of total pork exports in volume and 57 percent in value through August 1998. U.S. pork exports to Japan through August were 8.5 percent ahead of 1997, though the pace is slowing. U.S. pork exports to Russia through August exceeded total 1997 exports by 33 percent, making Russia the second largest market for U.S. pork so far in 1998. However, the Russian ruble devaluation on August 17 and the subsequent economic problems are likely to significantly affect U.S. pork exports to Russia for the remainder of 1998 and into 1999.
Mexico and Canada were the third and fourth leading markets respectively for U.S. pork through August 1998. U.S. pork exports to Canada through August were nearly 8.5 percent ahead of 1997, despite the relative strength of the U.S. dollar. U.S. pork exports to Mexico have posted strong gains and were 82 percent ahead of 1997 as of August, exceeding total 1997 exports by 4 percent.
U.S. pork exports to Hong Kong are continuing at a strong pace, as their dollar is pegged to the U.S. dollar. Therefore, U.S. pork has not suffered the same loss in competitiveness from the strengthening dollar as it has in many Asian markets. U.S. pork exports to Hong Kong through August were nearly 22 percent ahead of last year. However, U.S. pork sales to Korea through August fell 15 percent behind 1997. Booming domestic production reduced the demand for imports, while the economic crisis and devalued won dampened consumer demand, and more than offset U.S. price declines.
After many years of strong growth rates, U.S. pork exports are forecast to increase only minimally to 567,000 tons in 1999. Lingering global economic woes are expected to dampen consumer demand in many pork importing nations. Furthermore, export competitors are also experiencing overproduction, and will be aggressively pushing excess supplies into export channels. However, total U.S. pork exports are forecast to remain basically level due to expected import growth in countries such as Hong Kong and Japan, and sustained exports to Mexico and Canada.
U.S. pork imports are forecast to increase 5 percent to 300,000 tons in 1998, and climb another 6 percent in 1999 to 318,000 tons. The relative strength of the U.S. dollar, the large pork supply in Canada and Denmark, and the lack of demand in Asian markets have encouraged the flow of pork to the United States, and this trend is expected to continue into 1999.
Canada's hog industry is expected to continue its current expansionary phase through 1999. Much of the recent growth is due to Canada's push for expansion of production in the western provinces of Manitoba and Alberta. Newer facilities and lower labor costs, due to a recent labor settlement with major packing companies, point to a streamlining of the Canadian hog industry and an increase in competitiveness in the global pork market.
Hog inventories, which reached 11.8 million head in the beginning of 1998, are projected to increase to 12.2 million head by 1999. Pork production is forecast to reach 1.29 million tons in 1998, and to top 1.36 million tons in 1999. Consumption has increased to 945,000 tons, a level not seen since 1995, due to low pork prices this year.
Exports of Canadian hogs are forecast to increased to an estimated 4.1 million head in1998, a 20-percent increase over 1997. The closure of several Maple Leaf processing plants from December 1997 through early March 1998, and the subsequent movement of slaughter hogs across the border into U.S. packing houses, accounts for much of the increase. The United States continues to be the primary recipient of Canadian hogs, where relatively higher U.S. prices and a favorable exchange rate make the United States an attractive market. Higher inventories and low prices projected for 1999 will more than likely continue to push hogs south in 1999, albeit at a slower pace.
Imports of live hogs to Canada are subject to strict quarantine procedures due to Canada's pseudorabies regulations. However, a recent proposal which would allow imports of U.S. swine for immediate slaughter is currently awaiting Canadian federal Cabinet approval. If approved, it is possible that regulation permitting the importation of U.S. swine for slaughter will be in place by the end of 1998, or beginning of 1999.
The majority of Canadian pork imports come from the United States as Canadian consumer demand has grown to appreciate U.S. products such as luncheon meats, sausages and wieners. Nonetheless, imports are unlikely to increase much in 1999 given the continued weak Canadian dollar and Canada's increasing pork production. Canada imported 60,000 tons of pork in 1998; imports are projected to remain stable in 1999.
Canada, with its abundant supplies and the competitive Canadian dollar, is well positioned for the global showdown over market shares among pork exporters taking shape for 1999. Canadian exports for 1999 are projected to increase 12.5 percent to 450,000 tons. The United States and Japanese markets will be key to Canada's ability to fulfill expectations. Already in 1998, Canadian exports to the United States are up 4 percent and exports to Japan have remained strong. Elsewhere, Canada faces dismal prospects in recent growth markets such as Russia and South Korea.
While 1998 has proven to be a slow growth year for the Mexican swine industry, 1999 is sizing up to be a much more difficult year. Uncertainty about the relative value of the Mexican peso in the context of global economic instability will more than likely make feed grain imports more expensive and reduce producer margins. Moreover, increased global competition for market share in Asia, and large supplies of hogs in both the United States and Canada, is expected to limit Mexican export opportunities.
A slight break in feed prices this year, along with the effects of promising export opportunities carried over from 1997, brought an increase of nearly 3 percent to inventory numbers in 1998, raising the total ending inventories to an estimated 10.5 million head. Higher inventories coupled with increased slaughter rates in 1998 led to the production of an estimated 950,000 tons of pork; a minimal increase of 10,000 tons over the previous year. Pork imports, 95 percent of which come from the United States, were also higher and domestic consumption rose to a projected 990,000 tons in 1998. Pork production is expected to increase again in 1999 to 970,000 tons; consumption is projected at 1 million tons.
Imports for 1999 are forecast to decline slightly, as currency differences and higher domestic production will encourage consumption of domestic pork. However, lower global pork prices may, to a limited extent, soften this decline. Imports are forecast to decrease by 10,000 tons in 1999. Exports are forecast to remain even with 1998 levels due to increased global competition for limited market shares in 1999.
In June of this year, the Mexican Pork Producers' Council (CMP) along with the Mexican National Pork Commission (CNP) filed an anti-dumping petition with the Mexican Commerce Secretariat (SECOFI) against U.S. slaughter hogs. The petition results from concerns within the Mexican swine industry that large, competitively-priced, hog imports from the United States are putting pressure on Mexican market prices and producers. Mexican hog imports will reach a projected 70,000 head in 1998, a 75-percent increase over 1997. Given that SECOFI has recently determined to follow through on this petition, it is possible that U.S. exports may effected in 1999.
However, the Mexican swine industry is suffering as a result of other factors, too. High production costs and interest rates, and the impact of the peso devaluation on debts held in U.S. dollar terms, strain the Mexican swine industry. Moreover, a heavy reliance on imported feed exists among many farms as Mexican corn and sorghum supplies are not sufficient to meet the demand of local hog producers.
Chinese officials have acknowledged that their national animal inventory and slaughter data in recent years have been inflated by as much as 20 to 30 percent, respectively. However, new official statistics have only been released for 1996 and 1997. (please refer to the feature article on China for more information).
China leads the world in hog production. Though backyard production accounts for 85 percent of the nation's hogs, commercial production is becoming more important. Pork's share of total meat production fell below 70 percent for the first time in 1996. The trend is expected to continue in the near future, as government policies to encourage beef and mutton consumption are having some effect.
China's hog and pork trade is fairly insignificant. Most of China's live hog exports are destined for Hong Kong to service the fresh pork market, while most pork is exported to Russia and Hong Kong. Canada and the United States are the leading exporters of pork to China. Canada has invested in long term technical assistance programs aimed at ensuring Chinese reliance on their genetics and technology as it improves their own herds. The U.S. Grains Council is cultivating Chinese partners in the swine breeding industry in order to establish long term working relationships that would involve the purchase of U.S. swine genetics coupled with technical service. These efforts are crucial, as personal relationships and after-sale service are as important as price to Chinese decision makers.
The United States exported 3,038 tons (PWE) of pork to China through August 1998, exceeding total 1997 exports by more than 10 percent. U.S. pork exports to China were comprised primarily of frozen pork. U.S. pork variety meat exports of 1,083 tons to China through August are also well ahead of last year's pace, exceeding 1997 total exports by roughly 90 percent. U.S. pork and pork variety meats are also entering the Chinese markets as transshipments through Hong Kong, and imports are likely to continue increasing. Low to medium grade U.S. pork is re-exported to China from Hong Kong. (See Hong Kong section)
Hong Kong's domestic pork production has been declining at roughly 5 percent annually, and is forecast at 166,000 tons in 1998 and 158,000 tons in 1999, as it increasingly relies on imports to satisfy its consumption needs. Nearly 90 percent of the live swine slaughtered in Hong Kong are imported from China, with the remaining share supplied by the domestic industry. As domestic pork production meets less than half of the nation's consumption requirements, Hong Kong relies heavily on imports. Due to shrinking domestic pork production, any increase in consumption must be met through imports.
Pork consumption in Hong Kong is forecast to increase roughly 10 percent in 1998 to 379,000 tons, and rise another 3 percent in 1999 to 391,000 tons. Though the sluggish economy and slower growth rates are likely to constrain domestic demand, pork remains the meat of choice and consumption will benefit from a stable currency and low international pork prices. In 1997 and early 1998, domestic pork consumption jumped, partly due to E-coli in local beef and the bird flu crisis. As the meat safety issues settle down, consumers may return to greater beef and poultry consumption. However, growth in pork consumption is expected to continue through 1999, though at a slower pace than in recent years.
Despite record unemployment and slower growth rates, Hong Kong's pork imports are continuing at a strong pace, as their dollar is pegged to the U.S. dollar, thereby leaving the relative price of imports unchanged. Furthermore, pork originally destined for other Asian nations has been diverted to the Hong Kong market. Hong Kong's 1998 pork imports are forecast at 244,000 tons, representing a 30 percent increase over the previous year. The 1999 pork import forecast indicates a jump of roughly 15 percent to 280,000 tons, as domestic production cannot keep up with growing demand.
China, the United States, Brazil, and the Netherlands are the leading suppliers of pork to Hong Kong. The United States is the major supplier of fresh and chilled pork to Hong Kong. Brazil primarily exports high grade products, such as pork chops, while China supplies lower quality pork. The United States and the Netherlands also export low to medium grade pork to Hong Kong for re-export to China.
Frozen pork comprises the majority of Hong Kong's pork imports. Though chilled pork constitutes a minimal share of pork trade, chilled pork imports have been rising rapidly. This reflects the current trend of substituting fresh meat from domestic slaughter markets with imported fresh and frozen pork. Total U.S. pork and pork variety meat exports to Hong Kong through August were up 16 percent from last year. Frozen U.S. pork cuts and offal exports are losing market share to Canada, the Netherlands, Thailand, and other exporters.
Weak pork demand in Asia and Russia is encouraging other suppliers to target Hong Kong with their pork surpluses. As price has always been a key factor in local procurement decisions, the relative strength of the U.S. dollar makes U.S. pork less competitive in Hong Kong. Canada, Brazil, and other competitors can move their pork into Hong Kong more easily, due to the weakness of their currencies relative to the U.S. dollar.
Swine offal accounts for a significant share of Hong Kong's imports, although it is not included in the pork statistics. The United States exports considerably more swine offal than pork to Hong Kong, and offal imports are likely to further increase. The United States exported 13,709 tons (PWE) of pork variety meats to Hong Kong during the first 8 months of 1998, which was 10 percent ahead of last year's pace. Over half of Hong Kong's swine offal imports are re-exported to China, as offal is in short supply there. The leading offal suppliers to Hong Kong are the United States, Canada, the Netherlands, and Denmark.
The foot-and-mouth disease (FMD) outbreak in March 1997 sparked the downsizing of hog inventories in Taiwan. After peaking at 10.7 million head in 1997, swine inventories are expected to drop to 7 million head 1999. Swine inventories have fallen to about two-thirds of the pre-FMD level, as pork production approached to equilibrium with domestic demand. Pork production, expected to fall to its lowest level since 1986, is forecast at 890,000 tons for 1998, and 880,000 tons for 1999. Though the hog sector's share of total farm production value fell from 28 percent in 1996 to 16 percent in 1997, hog production remains Taiwan's most valuable agricultural sector.
Pork consumption fell in 1997 following the FMD outbreak, as consumers shifted to beef, poultry, and seafood. However, consumption has rebounded in 1998, due to strengthening consumer confidence and low pork prices. Domestic pork consumption is forecast to increase by 8 percent in 1998 to 931,000 tons, and remain fairly steady at 925,000 tons in 1999.
Pork is a staple meat for Taiwanese consumers, and there is a strong and diversified demand for pork variety meats. Historically, Taiwan exported high quality cuts, and retained all swine offal for domestic consumption. However, minus the inventory to supply pork to export markets, there is currently a shortage of swine offal in Taiwan. There is significant potential for imported swine offal.
The United States in particular is in a position to capitalize on this opportunity. In February 1998, the United States and Taiwan signed a bilateral market access agreement in the negotiations of Taiwan's accession bid to join the World Trade Organization (WTO). The agreement allows import access of various U.S. livestock products prior to Taiwan's WTO entry, and includes annual quotas of 5,000 metric tons of pork belly and other previously banned cuts, and 7,500 tons of swine offal. These banned items were opened to the United States under quota and will be open to all foreign suppliers which meet Taiwan's quarantine requirements, under a Tariff Rate Quota after Taiwan accedes WTO.
The lottery for the 1998 quota was successfully completed in June 1998, and the entire quota was allocated. However, imports will only be price competitive when domestic pig prices are above NTD 4,500/100 kg. While Taiwan's hog prices were well below NTD 4,000/100 kg for the first half of the year, prices soared to NTD 7000/100 kg in September due to short supply. The current price scenario is likely to encourage imports, and the new access agreement and the pork situation in Taiwan could provide U.S. pork with excellent export opportunities.
With the latest FMD case reported in May 1998, Taiwan will not be able to export significant quantities of raw pork before the turn of the century. Taiwan is trying to re-enter the Japanese market, and has received clearance for one packing plant to ship cooked pork and processed pork to Japan. However, the export volume will be minimal. Taiwan has been actively seeking alternative export markets, but high production costs make Taiwanese pork too expensive for most buyers.
The prolonged absence of Taiwanese pork from the Japanese market continues to reverberate through the Japanese pork industry. After years of slow decline, Japanese hog inventories registered their first year-over-year increase at the beginning of 1998. Pork production was up in 1997, and is forecast to increase in 1998, two successive years with increases in more than a decade. One clear effect of Taiwan's FMD problems is the reversal of fortune for the Japanese hog industry. Accounting for less than 60 percent of consumption in 1996, domestic production, estimated at 1.29 million tons (CWE), is forecast to capture 62 percent market share in 1998, and maintain that level in 1999.
Exporters such as the United States, Denmark, and Canada have increased exports to Japan, but have been unable to fully substitute for Taiwanese pork. After declining 21 percent in 1997, Japanese imports are expected to remain flat at 735,000 tons in 1998.
According to official Japanese import statistics, Japan imported 388,191 tons of pork through August 1998, with frozen pork accounting for 70 percent of total pork imports. Since Taiwan's departure from the market, the United States has been the largest supplier of chilled pork to Japan, accounting for nearly 75 percent of Japan's total chilled pork imports. Canada and Korea are also aggressively increasing market share in chilled pork, and account for most of Japan's remaining imports. Denmark, Korea, the United States, and Canada are currently the leading suppliers of frozen pork to Japan. Danish market share has fallen to 30 percent, while Korea has captured roughly 22 percent of the market. The United States and Canada account for roughly 17 and 12 percent of the Japanese frozen pork market, respectively.
Through June, total Japanese imports were consistently ahead of last year's pace because of the dampening effect of the safeguard in the first half of 1997. As the monthly pace of imports in the last half of 1998 slows, total imports for 1998 are expected to be little changed. Japanese imports in 1999 are forecast up 7 percent as supplier countries are expected to make further in-roads into those markets previously supplied by Taiwan, and Japanese stock levels approach a more normal level.
Despite lingering economic woes, Korean hog production has increased to record levels in 1998 due to favorable farm-gate prices, relatively strong export demand, and price competitiveness relative to beef. Hog inventories are forecast to decline 6 percent to 6.7 million head in 1998, as slaughter and pork production are forecast to jump 12 percent to 12.2 million head and 975,000 tons (CWE), respectively. Slaughter and production have increased due to the economic downturn, low prices, and export opportunities to Japan. Swine inventories are forecast to drop 6 percent in 1998 to 6.7 million head, and stabilize at that level in 1999. Slaughter and pork production are forecast to decline 7 percent in 1999.
Pork is a staple meat in Korea, with the population consuming roughly twice as much pork as beef. Domestic pork consumption is forecast to climb 5.5 percent in 1998 to 915,000 tons, and then slide 3 percent in 1999 to 890,000 tons. Price competitiveness relative to beef is expected to spur greater pork consumption in 1998, while lower production and lingering economic troubles will constrain consumption in 1999. Chilled pork is becoming more readily accepted by Korean consumers, as improvements in the distribution system enable end-users to receive better quality products. Imported chilled pork should benefit by this shift in the consumption pattern, but only after abundant domestic supplies are drawn down and the economy improves.
The devaluation of the won has increased the competitiveness of Korean pork in the export market, and is expected to transform Korea into a net pork exporter for the first time since 1993. Total 1998 Korean pork exports are forecast to climb 29 percent to 90,000 tons, and remain at that level through 1999. Strong demand from Japan spurred the export surge, accounting for more than 95 percent of Korea's pork exports, and consisting primarily of frozen pork.
Korea's total pork imports are forecast to plummet 35 percent to 50,000 tons in 1998, and remain at that level for 1999. The economic crisis and devalued won have dampened consumer demand while the cost of imports has increased. Booming domestic production has also reduced the demand for imports, as Korean pork producers have been able to meet domestic demand. Denmark, Canada, and the United States are the leading exporters of pork to Korea. The United States exported 5,988 tons of pork to Korea through August 1998, which was 15 percent behind last year's pace.
Managing overproduction and disbursing surplus product will be the key challenge for the remainder of 1998 and most of 1999. Overproduction is largely seen as the result of an EU-wide production response to hog cholera losses in the Netherlands and Spain, and lucrative markets in 1996 and 1997, as well as a simultaneous loss of export opportunities to Russia in 1998.
The EU-wide swine inventory is forecast to reach 117 million head by the end of 1998, and 119.7 million head in 1999. Growth in 1998 was most notable in Denmark, Germany and the Netherlands. Denmark and Germany are forecast to add 600,000 and 870,000 head to their respective herds. And the Dutch have brought their stocks back up to pre-1997 levels, adding a projected 1.5 million to total EU stocks.
The Netherlands inventories are forecast to shrink by 12.5 percent in 1999 as Dutch producers are faced with new environmental and health regulations requiring them to reduce inventory numbers. The Dutch government has mandated a 25 percent reduction in the Dutch pig herd by 2000. It is possible that similar regulations will be seen in other parts of the EU in coming years. Danish producers are already being faced with more restrictive environmental and animal welfare regulations.
Pork production is expected to increase in early 1999 as lower prices throughout the EU encourage a reduction in herd numbers and raise slaughter. However, it is expected that 1999 production will reflect 1998 levels, with totals forecast at nearly 17 million tons. Germany, Denmark and Spain all anticipate increases of 100,000 or more tons of pork production in 1999. The Netherlands and France are forecast to produce an additional 50,000 and 20,000 tons respectively. Record production levels will continue to put downward pressure on prices and increase third country export competition through 1999.
An outlet for overproduction might not have been as difficult to find if extra-EU export opportunities had not fallen through. The August 1998 devaluation of the Russian ruble and credit crisis brought prospects of exporting to that country to an abrupt halt. Given that Russia has soaked up nearly 30 percent of EU exports in previous years, the impending reduction in exports to this market has serious implications for the EU swine industry in 1999. Uncertainty of Russia's economic and political future makes any trade analysis for 1999 difficult. Given that Russia's domestic production does not adequately cover domestic consumption of red meat, it is assumed that exports to Russia will continue, albeit at a tempered rate over 1997 levels, and will either be in the form of low cost product, food aid or an eventual combination of these.
In response to the already high levels of pork in the EU market, the EU Commission granted temporary, private cold storage assistance in October 1998 in an effort to manage EU surpluses. Nonetheless, stocks must be removed from storage by the end of six months, thus necessitating a long term solution. Export refunds for pork were also re-introduced in May, 1998, and raised in September, and again in October, in response to the falling trend in prices this year. Additional policy proposals can be expected as the EU Commission attempts to mitigate the effects of EU pork surpluses and export competition.
While increased intra-EU trade and consumption will undoubtedly be a large part of the long term solution, the EU is looking to both the Eastern European states and Asia as export outlets. The hope for Asia is that economic reform efforts in that region will work in tandem with low EU pork prices to create export opportunities in 1999. However, considering that other major global pork producers, such as the United States and Canada, have also cast a hopeful eye in Asia's direction, it is reasonable to expect export competition in this region will increase. This may sustain downward pressure on prices until world production decreases. Recent gains in the strength of the yen do support increased demand for imports in Japan, but sizable competition from North America can be expected.
EU exports to Eastern Europe have increased consistently through the 1990s. Denmark, Germany and France have all established ties with Hungary, and the Netherlands has increased trade with Croatia and Slovenia. Poland is another major recipient of EU pork, receiving product from all four EU member states mentioned above. Smaller levels of EU exports have also found their way to the Baltic States. It is expected that exports to these countries will continue an upward trend in 1999 given the ample supplies and low prices anticipated for the year.
Russia's hog sector is continuing to decline. The 1998 hog inventory is forecast at 16.6 million head, which is 15 percent lower than 1997. Slaughter is forecast to decline 11 percent to 26 million head in 1998, and remain at that level in 1999. Although the industry has become more market-oriented, a quick recovery is not likely because of the decrease in government support, a sharp increase in input costs, and a drop in consumer demand due to economic woes. Consumption is forecast to drop 10 percent to 1.634 million tons in 1998, and fall another 4 percent in 1999.
Russia's total 1998 pork imports are forecast to decline 23 percent to 344,000 tons, and drop another 7 percent to 319,000 tons in 1999. The Russian ruble devaluation on August 17 is likely to have a significant impact on Russia's pork imports for the remainder of 1998 and 1999.
U.S. pork exports to Russia through August exceeded total 1997 exports by 33 percent, accounting for percent of total U.S. pork exports pork so far in 1998. Russia's pork imports from the United States are comprised primarily of frozen trimmings for further processing into hotdogs, sausages, and other traditional Russian meat products. While U.S. pork exports to Russia are expected to drop for the remainder of 1998 and 1999, the extent of the decline will be uncertain until the debt moratorium is lifted and the economic situation settles. EU pork exports are also suffering, and the loss of this market has worsened the already serious problem of overproduction.
U.S. pork exports to Russia will decline further if consumers shift to poultry, as the average import price of U.S. poultry is less than one-half of U.S. pork. However, the U.S. pork surplus suggests that processors will continue to aggressively market their product in Russia, especially given the lack of alternative markets for pork trimmings. (For more information, please refer to the article in the front of this publication.)
Large inventories, high pork production levels and uncertainty in Poland's major export market, Russia, are expected to cause an oversupply among Polish hog farmers for the remainder of 1998 and 1999.
Steady growth in inventory numbers over the past two years has led to live animal production increases of approximately 1 million head in both 1997 and 1998. An additional half a million head is expected over the course of 1999. Much of this rapid growth is attributed to adequate domestic grain supplies and improved profitability within the Polish swine industry since 1996. The higher inventories and higher slaughter rates led to growth in pork production in 1998 and are expected to continue through 1999 causing output to increase by another 50,000 tons.
While Polish live animal exports have remained relatively stable over the past three years, pork exports to eastern Europe and the former Soviet Union have increased substantially. The most important export market for Poland is Russia, where exports increased dramatically over the past years; from 114,600 in 1996 to 181,000 in 1997, and reached 150,000 tons before the ruble devaluation in August, 1998. Given the uncertainty of export opportunities to Russia in 1999, total Polish pork exports are projected to fall to 150,000 tons.
The loss of the Russian market will have serious implications for Poland. Low prices and the loss of profitability in the Polish swine industry caused by industry surpluses will more than likely pressure the Polish Agriculture Markets Agency to intervene on the Polish market. However, due to the limited storage capacity of pork and tight government funds restricting government purchases, intervention of this kind will be a short term solution.
Given poor export prospects for 1999, Poland may have to look inward to find a solution to its pork surpluses. Pork represents more than 60 percent of Polish red meat consumption, thus, any major changes in pig inventories and pork output have a significant impact on domestic consumption of pork. In 1998, domestic consumption increased by six percent along side an eight percent increase in pork production in 1998.
For further information, contact Melissa Schmaedick, (202) 720-7715 or Kim Svec, (202) 720-8252.
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