Loss of U.S. trade market share, partly caused by disease outbreaks and related trade restrictions that have affected animal product exports since 2003, compounds the problem. The outlook for U.S. meat, poultry, and dairy markets in 2006 depends on how well domestic production adjusts to changes in input costs, the effect of exchange rates on trade, the continuing effects of disease and trade restrictions on exports, and the increasing competitiveness of emerging animal products exporters.

Introduction

Vulnerability and volatility shape the forecasts for animal product markets and trade in 2006 and beyond. This report examines how potential and recent actual animal disease outbreaks, shaken consumer confidence, volatile exchange rates, and growing competition from producers in other countries affect U.S. trade prospects for major meats.

Animal product producers in Australia, Brazil, and Argentina compete with U.S. producers for export market share, but they, too, face a number of limitations. On the one hand, feed grain constraints limit Australia’s production of fed beef and thus its potential in satisfying the lucrative Japanese beef market. The United States was kept out of the Japanese market for over 2 years because of disease restrictions related to bovine spongiform encephalopathy (BSE, mad cow disease). On the other hand, Brazil and Argentina have ample feed, but exports to Japan are restricted by their own disease-related issues. In addition, Argentina imposed a beef export ban, which, while aimed at controlling domestic prices, excluded Argentine beef from most international markets.

Changes in input costs also create challenges. Corn is one of the primary ingredients in animal feed and often accounts for a significant portion of production costs. With higher energy costs and greater emphasis on ethanol as an alternative fuel, corn prices are forecast to rise significantly in 2006. Although distiller’s grain, a byproduct of ethanol production, is used in animal feeding, it is by no means a perfect substitute, and its use is limited, especially for poultry and hogs.

The outlook for U.S. meat, poultry, and dairy markets in 2006 depends on how well domestic production adjusts to changes in input costs, the effects of exchange rates on imports and exports, the continuing effects of disease and trade restrictions on exports, and the increasing competitiveness of some emerging animal product exporters.

Hog/Pork Trade

The U.S. hog industry appears to have benefited from the beef trade’s vicissitudes. In 2005, pork exports hit a record 2.7 billion pounds, up 22 percent from 2004 (fig. 4). Exports were especially strong to South Korea, Canada, and Russia. Pork exports are forecast to expand even further in 2006, by about 13 percent to just over 3.0 billion pounds. Record U.S. pork exports went to Japan and South Korea, two of the countries that had banned imports of U.S. beef, with Japan purchasing over 1 billion pounds of pork from the United States in 2005.

This pattern suggests a high degree of substitution between meat products by Japanese and South Korean consumers. U.S. pork continues to be a substitute for beef and poultry banned in many countries due to BSE or avian influenza (AI). The surge in pork exports may last only until the resumption of significant U.S. beef exports to Japan and South Korea, except where there are gains in consumption from habit formation. The forecast for pork exports is very uncertain as a result of such considerations.

In 2005, pork shipments to Mexico also reached a record high, although the growth was slower than to Japan and South Korea. Mexico has historically been the second-largest market for U.S. pork exports, but 2005 saw a slowing of growth in Mexican demand for U.S. pork. Much of the slowdown in pork demand growth may be due to increased demand for U.S. turkey because both pork and turkey are key sausage inputs. Mexico’s pork imports are expected to increase in 2006, mainly as a result of expanded economic growth in that country.

Overall, U.S. pork exports for 2006 are expected to rise 13 percent, but uncertainties about the extent of the effects of AI- and BSE-related closure of beef and poultry markets in Japan and South Korea surround the forecast. First-quarter 2006 pork shipments to foreign markets were particularly strong, about 22 percent higher than January-March 2005.

U.S. live hog imports in 2005 fell to 8.2 million head, a 3.7-percent decline from 2004, the first year-over-year decline in live hog imports from Canada in more than a decade (fig. 5). Whether the antidumping duty on U.S. grain corn contributed to the decline is unclear. Although the Canadian investigation into the alleged dumping and subsidizing of grain corn from the United States began on September 16, 2005, the provisional $1.65-per-bushel duty was not imposed on imports of U.S. corn until December 15, 2005. A subsequent ruling on April 18, 2006, by the Canadian International Trade Tribunal deemed that U.S. grain corn imports had not injured the Canada’s corn industry and lifted the duty immediately and refunded all provisional duties collected.

Live swine imports, almost exclusively from Canada, are expected to increase almost 9 percent in 2006, partly due to the negative effects of the relatively higher valued Canadian dollar on the international competitiveness of Canadian pork products. When the Canadian dollar appreciates in value, pork products from other countries become cheaper in Canadian dollar terms, creating competitive pressure for Canadian-produced pork products that are substitutes. As a result, Canadian producers would be inclined to sell more animals into the live market, which is less competitive, introducing more feeder pigs into the “mix” of live hogs to be imported from Canada in 2006.

U.S. live swine exports are largely destined for Mexico. Export numbers have been highly variable recently, due mostly to policy changes in Mexico and to changes in Mexican meat prices. In 2005, live hog exports were 153,650 head, down 12 percent from 2004. Live exports are expected to increase to about 159,000 head in 2006.

Further Information

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August 2006