Report Highlights

Mexico continued to relax its import restrictions on U.S. bovine products during 2005 and beef imports are expected to climb to 350,000 tons in 2006, up from 2005, but still below pre-BSE levels. The Secretariat of Agriculture also approved the importation of bulls for breeding under certain conditions. Mexico’s cattle exports are expected to remain strong during 2006 as exportable supplies of calves are good and grazing conditions have benefited from favorable weather conditions. Production and imports of pork are forecast to increase in 2006, as are imports of live hogs.

Executive Summary

Mexico’s 2006 exports of live cattle are forecast at 1.3 million head, marginally lower than the 2005 estimate of 1.45 million head. Despite heavy exports over the past few years, herd size and replacement supplies appear to be strong in exporting states. 2005 weather conditions have been favorable and grazing conditions and forage supplies are expected to be good heading into 2006. There is some concern in Mexico that the resumption of U.S. imports of Canadian slaughter cattle could hurt premiums for Mexican cattle. While pork slaughter is forecast unchanged for 2006 at 14.5 million head, meat production is expected to increase as the share of hogs slaughtered in federally inspected plants increases and the industry continues to adopt modern animal husbandry practices.

Mexico continues to relax its restrictions on beef imports following the detection of Bovine Spongiform Encephalopathy (BSE) in the United States in 2003 and imports of beef are forecast to reach 350,000 MT during 2006, up 30,000 MT from 2005, but still below pre-BSE levels. At the writing of this report, it is unclear when the Government of Mexico might further open its market to U.S. bovine products following the implementation of USDA’s minimal risk rule in July. Pork imports are forecast to increase slightly to 500,000 tons in 2006 as demand from the food processing and retail sectors remains strong.

Swine/Pork

Overall hog numbers and slaughter have remained relatively stable in recent years, a trend that is expected to continue in 2006. Underlying this trend has been a shift in the composition of slaughter from hogs supplied by the informal sector to those supplied by larger and more technically advanced producers as the trend to towards more modern production practices continues. Lower costs of production relative to the informal sector, better profitability, and strong prices during 2004 and 2005 are helping to encourage investment and consolidation in the pork sector. Official estimates indicate that the share of in situ or informal slaughter has dropped from 36 percent to just under 30 percent of slaughter in recent years. Consequently, while slaughter numbers and inventories are forecast flat in 2006, the share of hogs that are being produced and slaughtered under more modern conditions is growing and meat production is expected to rise.

Official estimates indicate that slaughter in federally inspected plants (TIF) jumped to a record 4.8 million head in 2004, compared to 4.7 million and 4.0 million in 2003 and 2002 respectively. It appears that this trend, which is expected to continue, is being driven by Mexico’s growing supermarket and meat processing sectors, which require better quality, more uniformity, and consistency in their meat products. TIF plants are in a better position to provide such products than Mexico’s municipal and in situ slaughter operations, which combined still account for a significant portion of hog slaughter. A subsidy of 50 pesos (USD $5.0) per head for hogs slaughtered in TIF plants is also helping to direct hogs to these plants and away from municipal and in situ slaughter plants or situations.

Mexican producers enjoyed very good prices over the past 18 months while U.S. prices were high. Cost of production among more technically advanced producers ranged between pesos 12.5 and pesos 14.0 per kg (USD $0.54 – 0.58 per pound) during 2004 according to official sources, well below estimated farm prices, which averaged pesos 15.71 (USD $0.68 per pound) during 2004. 2004 production costs among less technically advanced producers were between pesos 17.5 and 20 (USD $0.73 – 0.83 cents per pound), below the average farm price.

As long as grain and soybean prices do not increase significantly from current levels, production costs should remain at the low end of the aforementioned ranges during 2005 and 2006. Nevertheless, with more technically advanced producers enjoying such an advantage in production costs, production consolidation among larger producers is expected to continue. Current USDA forecasts point to lower hog prices during the balance of 2005 and 2006 which, if reflected in the Mexican market through imports from the United States, could erode profits. However, current U.S. price forecasts are still relatively robust compared to the cost of production in Mexico and strong and growing demand from the domestic market is expected to help support domestic production growth.

Consumption

Pork consumption continues to increase. Consumption of processed meats (such as sausages, and hams) is growing faster than consumption of fresh and frozen pork cuts. However, cuts still comprise the largest segment of pork consumption. Looking at carcass prices, pork is about 20 percent cheaper than beef, but is double the cost of chicken. Chicken consumption has grown at almost four times the rate of pork consumption over the past 10 years and pork consumption also faces competition from imported turkey in the meat processing sector. Nevertheless, per capita meat consumption is relatively low in Mexico when compared to Canada and the United States and the potential for growth among all meat types as incomes rise is considerable.

Trade

Imports of live hogs are forecast to reach 225,000 head in CY 2006 as processors seek to augment domestic hog slaughter to meet the growing demand for pork. Pork meat imports for CY 2006 are forecast slightly upward at 500,000 MT (CWE), driven in large part by demand from the supermarket and processing sectors for high quality inputs, cuts, and products. Domestically produced sausages, processed foods, and lunch meats containing imported ingredients, as well as imported sausages and pork products, continue to gain market niches in Mexico, particularly among middle and upper-income consumers. 2005 pork import are expected to pick up in the second half of the year as imports increase for the holiday season.

CY 2006 exports of pork meat are forecast to increase to 65,000 MT (CWE), mostly to Japan. Note that these exports are often re-exported via the United States and are often counted as exports to the United States in official data. While animal health concerns and relatively high prices have limited Mexican pork export opportunities to the United States, exporters have established a niche in Japan. As a result of a recent trade agreement with Japan, Mexican pork exporters will enjoy tariff-rate quota access in Japan as follows:

Mexican producers and animal health officials are seeking to have additional areas declared free of Classical Swine Fever (CSF) by USDA. Currently, the states of Sonora, Quintana Roo, Campeche, Baja California, Baja California Sur, Chihuahua, Sinaloa, and Yucatan have been declared low risk or free of CSF by USDA. Regionalization requests are also under review by USDA officials for the states of Nayarit, Coahuila, Nuevo Leon, Tamaulipas, and Durango.

Policy

There are a limited number of programs designed to support pork producers under the Secretariat of Agriculture’s “Alliance With You” program that provide limited subsidies for activities related to herd and genetic improvements. Producers have to meet certain standards relating to herd health and herd composition in order to participate. One overriding objective among pork producers seems to be to find a way to help small and medium-sized producers reach viable scales of production, possibly by establishing production contracts with larger pork processors and slaughterhouses.

To date, the GOM has yet to establish specific funding or support programs to aid smaller hog producers. Officials at Mexico’s Secretariat of Economy have been conducting an investigation of U.S. pork legs for approximately 18 months. It is still not clear when the results of this investigation will be published.

Marketing

There are good marketing opportunities for U.S. pork among producers of cold cuts and supermarkets catering to middle and upper income consumers. Educational seminars through supermarket chains, restaurants, and hotels appear to be an effective way to increase the awareness of the advantages of the wide variety of U.S. pork cuts.

U.S. livestock, beef and pork exporters, new to the Mexican market, are also encouraged to contact the following trade organizations for further market information.

Further Information

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Source: USDA Foreign Agricultural Service - September 2005