Prices of 51-52 percent lean hogs (live equivalent) in the fourth quarter of 2004 remain at startling levels despite seasonally high slaughter and pork production. Hog prices are expected to range between $55 and $56 per cwt, 50 percent higher than in the fourthquarter of 2003. Pork production for 2004 is expected to be almost 3 percent higher than last year, at 20.5 billion pounds. Excellent pork demand in both domestic and export markets are the primary factors supporting hog prices right now.

Through October, U.S. companies exported 1.8 billion pounds of pork products, more than 25 percent above the same period last year. Japan, Mexico, and Canada continue to account for about 80 percent of U.S. exports. Taiwan’s imports of U.S. pork products are currently 63 percent larger than last year, largely due to the effects of Porcine Circovirus in the Taiwanese swine herd.

Total U.S. Pork Exports Increase More Than 25 Percent Over 2003

In the first 10 months of 2004, U.S. companies exported 1.8 billion pounds of pork products, 26 percent more than during the same period last year. So far this year, the most important destination markets--in terms of quantity and export share--are Japan, Mexico, Canada, and Taiwan. As the table below shows, these four markets together account for more than 80 percent of 2004 pork exports.

Exports to Japan Increase, but Export and Market Shares Decline

U.S. exports to Japan through October were 11 percent above a year ago, despite Japanese imposition of the Safeguard in August. The Safeguard is a WTO-legal measure which the Japanese Government can use to protect Japanese hog producers from surges of imported pork products. The Safeguard effectively increases the price of imported pork products by about 25 percent. Economic factors that could explain higher U.S. exports to Japan, despite higher import prices, include Japan’s need to substitute for smaller imported beef and poultry supplies. Japanese restrictions on North American beef imports, and Avian Influenza outbreaks in poultry-exporting Asian countries have been major factors in limiting those imports.

More recently, the lower valued U.S. dollar is a factor frequently cited as most important in driving the U.S. export sector. With respect to Japan, the U.S. dollar has depreciated more than 21 percent against the Japanese yen since 2002. Although Japan remains the largest destination for U.S. pork, its share of U.S. exports has declined from 48.7 percent, to 43.2 percent. Japanese import data also show that U.S. pork products accounted for a smaller percentage of total Japanese pork imports, compared with the same period last year, despite a lower valued U.S. dollar.

The loss of the U.S. market share is due to losses on the frozen side of the market. It is likely that Denmark and other smaller European pork-exporting countries, gained market share from the United States and Canada early in 2004 when the EU temporarily re-instituted export subsidies to “rebalance” the EU market. (http://www.fas.usda.gov/ gainfiles/ 200404/ 146105885.pdf - PDF)

Exports to Mexico Climb; Mexican Share of U.S. Exports Increases Also

Through October, U.S. exports to Mexico have increased 64 percent over the same period of 2003. Early in 2004, the driving factor behind at least part of the increase was the BSE-related reduction in Mexican beef imports from Canada and the United States. But more generally, the increased U.S. pork exports to Mexico are more likely a function of competitively-priced U.S. pork products, a growing Mexican middle class, and an improving retail marketing system in Mexico.

Mexican consumers appear to have a preference for specific pork cuts: hams and picnics, in particular. Such preferences are reflected in cut-out data, presented by the Mexican Pork Confederation:

These data suggest that Mexican markets attach a greater value to hams and picnics than do markets in the United States. In Mexico, 35 percent of the value of a hog carcass derived from the ham, while in the United States, hams accounted for 19 percent of the carcass value. The difference in valuation between Mexican and U.S. markets for picnics also stands out: 15 percent in Mexico versus 6 percent in the United States.

Mexican preferences for hams and picnics are reflected in U.S. exports to Mexico. Calculations using U.S. export data, below, indicate that hams and shoulders are a growing share of total exports to Mexico. In 2000, hams and shoulders accounted for 40 percent of exports to Mexico, while 10 months into 2004, that share has increased to 72 percent.

In the summer of 2004, the Mexican Ministry of Economy initiated an antidumping investigation of imported U.S. hams (fresh and frozen). The Ministry claims that pork legs have entered the Mexican market at prices significantly below the cost of production. The resolution claims there is sufficient information to determine that there is price discrimination and damage to the Mexican pork industry. The Ministry of Economy has not yet concluded its investigation.

Taiwan an Important Export Destination This Year; Other Asian Markets Lower

U.S. pork exports this year to Taiwan have increased 63 percent over the same period of 2003. Taiwan now accounts for 4.8 percent of U.S. exports, an increase from 3.7 percent last year. Taiwanese demand for U.S. pork products has increased because of an outbreak of Porcine Circovirus in Taiwan, which has reduced Taiwanese domestic pork production. http://www.fas.usda.gov/gainfiles/ 200408/146107209.pdf. (PDF)

Taiwan’s increased demand for U.S. pork contrasts with lower demand from both South Korea and Hong Kong. Exports to South Korea are currently 27 percent lower than last year. So far this year, South Korea accounts for 2.8 percent of U.S. exports, whereas last year at the same time, Korea’s export share was 4.9 percent. Exports to Hong Kong are currently 12 percent lower than a year ago. Hong Kong accounted for 1.6 percent of U.S. pork exports through October. Last year at this time, Hong Kong’s export share was 2.3 percent.

Part of the reason for lower U.S. exports to Hong Kong and South Korea is likely the increasing competitiveness of competing pork-exporting countries. In Hong Kong, data indicate that imports from China, Vietnam, and Europe have all increased in 2004. Shorter distances could make developing pork export industries in China and Vietnam more competitive in some Asian markets. (http://www.fas.usda.gov /gainfiles/200408/146107302.pdf - PDF). Subsidized European pork products also appear to be a factor contributing to lower U.S. exports to both Hong Kong and South Korea (http://www.fas.usda.gov/gainfiles/200409/146107462.pdf - PDF).

Market Integration in the North American Hog Industries by Mildred M. Haley http://www.ers.usda.gov/publications/ldp/NOV04/ldpm12501/. About 8 percent of the hogs slaughtered in the United States in 2004 will originate in Canada--many more than 10 years ago. Canadian hogs have flowed into the United States in response to significant structural changes in the U.S. pork industry, concurrent with policy changes in Canada. This, combined with a strong U.S./Canadian dollar exchange rate, created incentives to expand hog operations in Ontario and to start production in Manitoba. In 15 years, an open border and pronounced breeding herd efficiencies helped to increase Canadian hog exports to the United States by more than eight-fold.

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

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