On the upside we had the opportunity to talk to pork producers, breeders, grain traders and equipment companies involved in the Mexican pork industry. Following some of our observations:

Mexico has been 65 per cent self-sufficient in pork production. The situation is changing dramatically and Mexican are calling for more pork especially from the US High corn prices driving some smaller producers out of business while larger producers focus on the higher value export market.

Imported corn from the US is expensive for Mexican pork producers. A bushel of corn, delivered, costs about $1 more in Mexico than it does in the United States, That’s huge when you consider that feed accounts for well over half of the cost of bringing a hog to market.

The Mexican pork industry has increasingly focused on exports. This fact paired with a combination of factors such as high corn costs for Mexican farmers, elimination of duties on US pork and severe drought have created conditionsthat have boosted US pork exports there by 17 per cent in volume and value through the first three months of 2012.

In terms of exporting its own pork, Mexico has seen sales to its Number one international customer, Japan, jump more than 37 per cent so far this year, according to the Global Trade Atlas. Smaller amounts of pork exports to South Korea and the United States are up 77 per cent and 91 per cent, respectively. So no doubts the largest importer of Mexican pork products so far in 2012 has been Japan, followed by the US and Russia.

The main exporting region of Mexico is Sonora, which exported 37 million tonnes.

While Mexico remains a top customer for US and Canada pork, particularly hams, it is aggressively pursuing exports and is becoming a formidable competitor in places like Japan.

In 2011, US pork exports to Mexico set a new record at $1.04 billion in value, while the volume record of 545,732 metric tons (1.2 billion pounds) was set in 2010. Exports to Mexico in 2012, account for 27.2 per cent of total US pork exports, by volume and 18 per cent by value.

Between January and August 2012, Mexico exported 157 million tonnes of meat to 26 countries, representing a nine per cent increase compared to the same period in 2011.

Mexico has started exporting pork to China, with an expected market value of over $35 million, according to members of the Mexican Trade Mission.

Unfortunately an improvement in Mexico's infrastructure is behind the increase in international sales.

On the other hand the domestic per-capita pork consumption in Mexico has recovered after a couple of years of lower figures. An important factor in this continued growth is the increasing confidence of Mexican consumers in pork. Struggling for years by a reputation as a lesser-quality protein, pork is showing signs of a rebound in the country.

Early this week was a Rabobank seminar in Leon, Guanajuato about the global pork industry and its repercussions in the Mexican Market. They mainly talked about the global prices (which is a topic we update every week on this commentary) and global animal protein consumption.

When they discussed about meats they showed, for instance, how chicken has achieved its maximum capacity in terms of consumption meanwhile beef, but mainly pork have gained more ground in international markets, even a little bit beyond population growth, which is really good news for the industry.

However there are an interesting number of good pork producers in Mexico that assume that 2013 is going to be a good year for them in terms of profits, especially during the last two quarters of the year. The liquidation occurring north of their border plus lower grain prices are two powerful reasons they consider are going to drive prices in the Mexican market by 2013.

Finally they have anticipated excellent yields in Argentina and Brazil’s crops in 2013.

In closing

The strengths of the Mexican swine industry relative to the two other partners (US and Canada) in the North America Free Trade Agreement includes:

• Lower labor, land costs and cheaper infrastructure (barns);
• Easier permitting; and
• Increase in consumption.

If Mexican swine producers can deal with the challenges presented by the high cost of importing grain, the minor financing availability, and a poor transportation, the industry can continue to thrive.

In terms of commercial pig production there is a trend in Mexico to close the herds to avoid entrance of diseases by bringing new breeding stock (replacement gilts) into the barns. Part of the problem is the increased number of veterinarians taking charge of sow units. They are more focus in health issues than in production. These herds have implemented semen introduction as a tool to genetically improve sow/offspring productivity. There are not enough data yet to verify if the system is working or if it’s being more productive and efficient.

The pork prices have been steady for most of this year surrounding 20 pesos/kilo liveweight ($0.70 US/lb liveweight). At this point there are a group of producers losing money, but most of them are on the breakeven border line. There were some picks in prices in midsummer, with a couple of weeks reaching 25 pesos per kilo ($0.87 US/lb liveweight).