Market Preview: The US Pork Industry Crystal Ball

US - Weekly U.S. Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 9 June 2006
clock icon 5 minute read

The National Pork Board has celebrated the 20th anniversary of the 100% legislative pork checkoff at major events all year. This week's World Pork Expo in Des Moines was no exception as the Board's 20th anniversary logo was prominently displayed.

To commemorate the anniversary, Pork Checkoff Report, the Board's quarterly magazine, included two articles in its World Pork Expo edition that looked at the effect of shifts in domestic pork demand and U.S. pork exports over the last 20 years. I was honored to write the demand article and collaborate with Glenn Grimes and Ron Plain of the University of Missouri on the export article.

Figure 1 shows Grimes' demand indexes for all three major meat species since 1970. Note the rapid decline in demand beef and pork experienced from 1979-85. Both fell by an average of just less than 4%/year for 5 years while chicken demand declined by nearly 3%/year during that period.

Fig. 1 - U.S. Consumer Demand Indexes

Since 1985, though, pork demand has been much more stable. While holding our own is not the goal, it may well have been a terrific outcome given the increase in chicken demand and the continued decline of beef demand for another 13 years.

But, what if the 1979-85 decline had continued at the same pace? Figure 2 shows the result: A much lower demand index in 2005. A 2005 demand index of 42.4 means 2005 prices would have had to be 64% lower to maintain per-capita consumption at 1985 levels. Or, 2005 per-capita consumption would have had to be 48% lower to maintain prices at 1985 levels.

Fig. 2 - Pork Demand Index

If demand had declined at half of the 1979-85 rate, the 2005 index would have been 62.4. The necessary price decline to maintain 1985 per-capita consumption would have been 34% and the necessary per-capita consumption decline to maintain prices would have been 26%.

Was the checkoff responsible for these foregone losses? We cannot determine that with certainty, but I'm certain the 100% legislative checkoff was not entirely responsible. However, the timing of the change in the trend, and the initiation of aggressive funding and marketing by U.S. pork producers, is just too close to not credit it greatly for the industry's current stature and success.

Value of Exports

The other article deals with the value exports have added to U.S. pork. Exports have grown from 86 million-lb. carcass weight in 1986 to 2.66 billion lbs. in 2005. The value of exports has grown from $1.97/hog in 1986 to $25.44 in 2005 with pork muscle cuts accounting for $22.01/hog and pork by-products accounting for $3.43/hog.

The increase in U.S. net pork exports has allowed the industry to grow by 0.8% more/year than it could have without the higher net exports. The industry is roughly 16% larger today than it would otherwise have been.

Finally, the growth in net exports has added significant value to U.S. hogs. Figure 3 contains computed values for each year's change in net exports. When net exports grow, they add value to hogs. When they fall, they detract from the value of U.S. hogs. Adding them up across the 20 years gives an impressive number: $6.3 billion in additional revenue.

Figure 3
Returns to Producers from Decreased Imports and Increased Exports of Pork

Again, the $54.7 million in checkoff expenditures cannot claim complete credit for this growth. USDA has contributed a significant amount of Market Acceess Program (MAP) funds. In addition, U.S. packers have invested funds, manpower and expertise in moving more pork into foreign markets. Finally, the National Pork Producer's Council has played a pivotal role in opening markets and reducing tariff and non-tariff trade barriers around the world thus allowing other efforts to have a chance.

Who would have thought in 1985 and 1986, as the industry debated the 100% legislative checkoff, that 20 years later we would be seeing these kinds of numbers? What will the numbers be 20 years from now? My crystal ball doesn't work that far out but it is fun to think about.

The two articles can be found in their entirety in the summer 2006 Pork Checkoff Report on the National Pork Board's Web site, Producers can get their own copy of Pork Checkoff Report by calling the National Pork Board's Producer Service Center at 1-800-456-PORK (7675).


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