August 16, 2013
     
Trade reinvents America's swine sector

       

 

 

 

Once known primarily as a poultry exporter, the US swine sector has transformed itself from a domestically oriented industry to become the world's leading pork exporter, shipping almost twice as much as second ranked Canada.

 

American pork exports grew from 0.04 million tonnes in 1986 to 2.44 million tonnes in 2012, an increase of 6,161% over 26 years. During this period, U.S. pork imports declined by 28%. Over that time span, import volumes fell 28.7%, from 0.503 million tonnes in 1986 to 0.363 million tonnes last year. Equivalent to just 3.45% of domestic output, most of this volume came in from Canada duty free under the NAFTA trade agreement.

 

But the greatest impact was on the industry's orientation, as it went from being domestic to export oriented in more ways than one. Whereas exports only equaled 0.6% of production in 1986 (and imports amounted to 8%), by 2012, they accounted for 23.2% of America's pork output.

 

Despite the quantum increase in both volume and value this implies, a better measure of the foreign market's importance to the American hog farmer can be seen in the amount of value per hog he derives from it. According to a study by Dr. Ron Plain, Professor of Agricultural Economics, University of Missouri-Columbia ("Economic Impact of U.S. Pork Trade, 1986-2012", University of Missouri-Columbia Dept. of Agricultural Economics Working Paper AEWP 2013-2), the value of US pork and pork by-product exports per slaughtered hog jumped 2,736%, from US$1.97/head in 1986 to US$55.87/head in 2012.

Moreover, Plain estimates that 1% of the US swine sector's annual growth over the past quarter century has been export-driven. According to Plain, had imports remained constant at 1986 levels of 500,000 tonnes and exports at 40,000 tonnes, America's hog herd of 66.6 million (as of June 1st 2013) would be 24 million head or 36% smaller than it currently is.

 

Geographically speaking, North America and East Asia define America's pork trade, accounting for over 80% of exports. Japan absorbed 25.6% of exports, Mexico 21.6%, China and Hong Kong's combined 14.5% share and Canada's 10.9%. Going forward, the greatest opportunity lies in China, a country that has gone from nominal pork exporter status ten years ago to chronic importation of a million tonnes or more for the last four years.

 

Going forward, America's swine sector faces some strong headwinds over the medium term. The years from 2008 to 2011 were good ones, as high export demand dovetailed with hog prices rising faster than feed costs. However, 2012's Midwestern drought upset the apple cart. Feed costs greatly outstripped sagging pork prices. Only the use of pork futures to hedge costs and the fact that deep pocketed integrators (who are reluctant to cull their herds) account for much of output kept productionand exports from falling in 2012.

 

2013 opened with sagging prices and high feed costs, partly counterbalanced by greater sow productivity, as the number of piglets per litter increased. With a 2.4% increase in per capita pork consumption, exports were poised to stay flat until Russia, the fastest growing market for US pork, banned its import due to ractopamine residues in the meat.

 

But the long-term picture remains bright. Live hog prices have risen 35% since the early second quarter and are now approaching their 2011 peaks. As this coincides with a fall of more than 30% in soy and corn feed costs, industry profitability has been restored. With the highest swine rearing productivity, lowest production costs, rising domestic consumption and overseas demand, America's swine sector appears on track to enjoy simultaneous strong domestic demand and a resumption in export growth within one or two quarters.