Pork Outlook Report - May 2004

by 5m Editor
27 May 2004, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the May 2004: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data. The report indicates that lower red meat production is more than offset by larger poultry production.

USDA Economic Research Service

Retail Pork Price
Percent change from previous month
NOTE: This issue presents the first projections of U.S. livestock and poultry product supply, use, and prices for 2005. Due to uncertainties as to the length of bans regarding the imports of ruminant products because of the discovery of a BSE-infected cow in December 2003, forecasts for 2004 and 2005 assume a continuation of policies currently in place. Subsequent forecasts will reflect any announced changes.

Total U.S. meat production in 2005 is projected to increase fractionally as lower red meat production is more than offset by larger poultry production. Cattle and hog prices in 2005 are expected to average near the relatively high prices expected this year.

Second-quarter hog prices are expected to average $50-$52 per cwt, almost 20 percent ahead of the same period last year. For the year, hog prices are expected to average $45-$47. Hog prices in 2005 will likely average about $44- $47. Significantly higher hog prices for this year come at the same time as pork production to date is running about 3 percent ahead of 2003. Production next year is expected to decline slightly from 2004.

Extraordinary consumer demand is the key factor driving 2004 hog prices higher, despite larger production. Both domestic and foreign consumers appear willing to pay higher prices for larger supplies of pork. Retail pork prices this year are expected to average in the mid-$2.70s a pound, or about 3 percent ahead of 2003. In 2005, prices are likely to run about 3-percent higher than 2004.

Domestic and Foreign Pork Demand Drives Live Hog Price Increases

Second-quarter prices of 51-52 percent lean hogs (live equivalent) are expected to range between $50 and $52 per cwt, almost 20 percent greater than a year ago, despite a larger slaughter, heavier dressed weights, and greater pork production. Secondquarter slaughter is expected to be almost 4 percent greater than second-quarter 2003. With dressed weights running about 1 pound ahead of last year, at 200 pounds, second-quarter pork production is likely to be just shy of 5 billion pounds, or about 4 percent ahead of a year ago. For the year, the U.S. pork industry is expected to produce 20.5 billion pounds of product, almost 3 percent more than last year, and live hog prices this year are expected to range between $45 and $47 per cwt, almost 15 percent above 2003.

Higher hog prices at the same time slaughter and production are increasing is the result of very strong demand for pork products. U.S. consumers appear willing to pay higher prices for larger quantities of pork products at the same time foreign consumers are also demanding more U.S. products. The first quarter retail pork price--$2.69 per pound- -was about 3 percent higher than a year ago. Retail prices for 2004 are expected average in the $2.70s. Strong consumer demand and higher feed prices are expected to keep hog prices relatively high in 2005. The 51-52 percent lean hog prices (live equivalent) are expected to range between $44 and $47 per cwt, with pork production about the same as 2004. Retail pork prices next year will likely run about 3 percent above 2004.

Foreign Demand for U.S. Pork Products on Fire

The U.S. pork industry exported 523 million pounds of product in the first-quarter of 2004, almost 19 percent greater than in the same period last year. As usual, Japan, Mexico, and Canada accounted for almost 78 percent of first-quarter shipments. Two factors explain the surge in U.S. pork exports: closure of important foreign markets to U.S. and Canadian beef products, and the value of the U.S. dollar, which has depreciated significantly in terms of important foreign currencies.

Exports to Japan and Taiwan increased 7 percent and 153 percent over first quarter 2003. Closure of these markets to U.S. and Canadian beef products explains part of the increase. Although not a perfect substitute, pork can replace beef, to some degree, on restaurant and home menus. The depreciated value of the U.S. dollar makes dollardenominated pork products relatively cheaper, compared with products valued in Canadian dollars and Danish krone. Also, with respect to the Japanese market, the anticipated lifting of the Safeguard--a mechanism that increases the minimum import price of imported pork products-- on April 1 was likely another factor that increased U.S. pork exports to Japan.

Mexico imported 126 million pounds of U.S. pork in the first quarter, an increase of 88 percent over the first quarter last year. Although Mexico has begun the process of re-opening markets to some U.S. beef products, much of the first quarter increase in U.S. pork exports to Mexico is likely attributable to Mexican buyers substituting for beef.

Although Canada is a major pork producer and exporter, its imports of U.S. pork products were 31 percent greater than a year ago. The exchange rate is likely a major explanatory factor. The stronger Canadian dollar and an international border that is relatively open to trade allow an integrated North American pork industry to source favorably priced pork products in the United States for sale to Canadian consumers.

Another factor in increased U.S. exports to Canada--despite Canada’s being the world’s second largest pork exporter last year--is the “nonhomogeneity” of the commodity referred to generally as “pork”. In fact, pork is a collective term used to describe the set of cuts produced when a hog is slaughtered and butchered: loins, butts, picnics, ribs, bellies, and trim, etc. It is likely that at any one point in time, a particular market in Canada is surplus or deficit in one particular pork cut. The likelihood is that U.S. packers had adequate supplies of a particular pork cut to sell at the same time the Canadian market was deficit in that cut. The depreciated value of the dollar likely made the transaction more attractive to Canadian buyers.

Current expectations are for the export momentum that started off the year will continue through 2005. U.S. pork exports are likely to exceed 1.9 billion pounds this year--an increase of more than 13 percent over 2003--and are expected to break the 2- billion-pound mark in 2005.

U.S. Imports Lower Than a Year Ago

Weekly Hog Slaughter
Percent change from last year
Buyers in the United States imported about 275 million pounds of pork cuts in the first quarter, a decline of 5 percent from a year ago. The lower valued U.S. dollar--making imported products more expensive--is likely the primary factor accounting for the decrease. The major countries of origin--Canada and Denmark--and their shares of U.S. imports 80 percent and 14 percent, respectively, remain largely constant.

Expectations are for the lower valued U.S. dollar to continue to limit pork imports for the remainder of 2004, and likely through 2005. This year, the United States is expected to import about 1.1 billion pounds or, almost 5 percent less than 2003. In 2005, pork imports could fall to 1 billion pounds. Market shares are not expected to change much. The lion’s share of imported pork--80 to 85- -percent will be sourced from Canada, and 12-15 percent from Denmark, with the balance from other smaller exporting countries.

Canadian Hogs: Heading South?

U.S. buyers imported 2.2 million Canadian hogs in the first quarter of 2004, 47 percent more than in the same quarter last year. Thirty-four percent of first-quarter Canadian imports were slaughter hogs and 66 were feeder pigs. The United States is importing more slaughter hogs, as a percentage of total imports, largely because the appreciated value of the Canadian dollar has made Canadian pork less competitive in foreign markets. Statistics Canada reports that Canadian pork exports through March were about 2 percent lower than in the same period of 2003. Consequently, Canadian slaughter plants are slaughtering fewer animals than a year ago, reflecting soft foreign demand for Canadian pork products. Less demand for the product translates into lower bid prices for animals, and the opportunity for U.S. slaughter plants to bid Canadian hogs south into the United States. The higher percentage of Canadian slaughter hog imports has taken place despite the lower valued U.S. dollar. The aggregate Canadian slaughter is running about 1 percent below a year ago. So far this year, the weekly Canadian slaughter has averaged 473,000, at prices about 10 percent higher than last year.

This year, the United States is expected to import 7.8 million hogs. Next year, imports are likely to be over 8 million head. In both 2004 and 2005, 65 percent of live hog imports will likely be feeder animals.

Anti-Dumping-Countervailing Duty Petition Investigation Goes Forward

On March 5, The National Pork Producers’ Council, along with State pork producer organizations and individual U.S. pork producers, filed antidumping and countervailing duty petitions with the U.S. Government. The organizations charge that “…surging imports from Canada have caused prices to plummet in the U.S. market. The imports from Canada have resulted in an oversupply of hogs in the U.S. market…. Canadian producers have been able to increase their herd size because of substantial subsidies given to them by the Government of Canada. Additionally, Canadian producers have been able to grow market share in the U.S. market by selling their hogs in the United States below what they sell in their own market.”
The Tariff Act of 1930, as amended, provides for implementation of countervailing duties (CVD) when two conditions are met:

1. The Department of Commerce determines that the government of a country…is providing, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of the subject merchandise that is imported…into the United States and

2. …the U.S. International Trade Commission determines that an industry in the United States is materially injured or threatened with material injury…by import of such merchandise.

The Tariff Act of 1930, as amended, also provides that antidumping (AD) duties will be imposed when two conditions are met:

1. The Department of Commerce determines that the foreign subject merchandise is being, or is likely to be, sold in the United States at less than fair value, and

2. The International Trade Commission determines that an industry in the United States is materially injured or threatened with material injury…. by imports of such merchandise.

On April 8, 2004, the Commerce Department allowed the petition investigation to proceed when it determined that the petition of the NPPC et al

1. adequately and accurately alleged that the U.S. hog production industry was being materially injured by subsidized imports of Canadian hogs, sold at less than fair value,

2. included information supporting the allegations, and

3. had shown that the petition had “industry standing”, meaning that the petition met the statutory criteria of representing the necessary portion of U.S. hog producers.

Consequently the Commerce Department began its investigation of the CVD and AD charges. Had the Commerce Department found to the contrary—no industry standing, no unfair pricing--then examination of the Petition’s charges by both the Commerce Department (DOC) and the International Trade Commission (ITC) would have ended.

The second point where U.S. Government investigation of the petition charges could have ended was on May 7, 2004, when the ITC commissioners voted on whether U.S. hog producers have been injured by importation of Canadian hogs. The Commission voted unanimously, that “on the basis of the information available to it…there is a reasonable indication that [U.S. hog producers] are being materially injured or threatened with material injury…by reason of imports of Canadian hogs.”

The ITC’s affirmative determination gives the “green-light” for the Commerce Department to proceed with its in-depth CVD and AD investigations. With respect to the CVD investigation, the DOC will look at Canadian Government policies that are alleged to be subsidizing Canadian hog production, and on June 11, 2004, it is expected to make a preliminary CVD determination. “…If Commerce finds a reasonable basis, in a CVD investigation, it estimates a subsidy margin…and requires bonds or cash deposits to be posted for each entry of the merchandise in an amount equal to the estimated net subsidy.”

With respect to the AD investigation, the DOC examines financial records of selected Canadian swine market participants to determine whether Canadian hogs have been sold in the United States at less than fair value. If dumping is established, the DOC makes a preliminary determination that “estimates the weighted-average dumping margin, the amount by which the normal value of Canadian hogs exceed their import price. The DOC is expected to make its preliminary antidumping determination on August 25, 2004. In the event of an affirmative determination, bonds or cash deposits for each entry of Canadian hogs in an amount equal to the estimated dumping margin will be required to be posted.

After the DOC has made its preliminary determination—whether affirmative or negative-- the International Trade Commission begins a final investigation concerning injury to the U.S. hog production industry.

In November 2004, the DOC is expected to make a final determination as to whether a subsidy is being provided to Canadian hog producers, or sales of Canadian hogs in the U.S. are taking place at less than fair value. If the final determination is negative, the proceedings end, bonds are released and cash is refunded. If the DOC’s final determination is affirmative, the ITC will likely make its final determination of material injury in December 2004.

If the ITC’s final determination of material injury is affirmative, the Commerce Department issues a CVD and/or AD order, requiring imposition of duties in the amount of the net subsidy or dumping margin. If the International Trade Commission’s final determination of material injury is negative, no CVD or AD duties are imposed, and deposits are refunded.

The petition of the NPPC et al. seeks duties of from 5 to 25 percent on live hogs imported from Canada, with the exception of breeding animals. Pork is not included in the petition.


For more information view the full Livestock, Dairy and Poultry Outlook - May 2004 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - May 2004