Pork Exports on Track to be Record Setter

With export results from the first half of 2011 now in place, the year is shaping up to be a record-setter for U.S. pork. The combination of strong first-half export performance and a positive second-half outlook project U.S. pork exports eclipsing the $5 billion mark for the first time in history.

For the first half of the year, pork and pork variety meat exports were up 14% and 19% in volume and value, respectively, totaling 1.08 million metric tons (2.4 billion pounds) valued at $2.805 billion. Based on those results and a positive outlook for the remainder of the year, exports to China/Hong Kong, Japan, South Korea and Canada are likely to drive pork exports to exceed 2010 levels by at least 10%.

In June, pork exports were 25.3% of total U.S. production at an export value of $50.90/head. This compares to 24.8% of production and $47.42/head in June 2010. For the first half of 2011, exports equaled more than 27% percent of production with exports providing $52.76 of value per head.

U.S. Meat Export Federation (USMEF) is not alone in its optimism regarding the prospects for pork exports. The U.S. Department of Agriculture’s World Agricultural Supply & Demand Estimates released last week forecast higher pork exports for both 2011 and 2012. Relatively strong demand in Asia and favorable exchange rates were factored into the projections.

Other factors that could have significant effects on U.S. pork exports include:

South Korea/U.S. (KORUS) Free Trade Agreement – This free trade agreement (FTA) is one of three pending congressional approval. The impact of the FTA could result in U.S. pork exports to Korea increasing an estimated $220 million/year and more than doubling within five years. The sooner this FTA is approved, the sooner the U.S. pork industry will begin to realize the benefits, which include a phase-out of import duties that currently stand at 22.5% for chilled pork and 25% for frozen pork. Chile and the European Union, two important suppliers of pork to Korea, have already implemented FTAs and are benefiting from reduced tariff rates.

Opportunities in Korea are even more pronounced since rampant foot-and-mouth disease (FMD) issues resulted in about one-third of that nation’s hog herd being destroyed. The subsequent pork shortage and related price inflation have resulted in increased imports and temporary tariff reductions. While this has created opportunities for pork-producing nations across the world, the U.S. pork industry has benefited more than any other.

Through the first half of 2011, U.S. pork exports to Korea are up 145% in volume and 186% in value. The United States has also gained more market share than our international competitors – currently accounting for 35% of Korea’s total pork imports. How fast Korea rebuilds its hog herd will certainly affect the size of the pork opportunity there in the years ahead.

Adoption of an MRL (maximum residue level) for ractopamine – China and Taiwan currently have a zero-tolerance policy for the presence of ractopamine in pork. Adoption of an MRL would allow a larger share of U.S. pork production to qualify for export to these key Asian markets.

Domestic pork production in China and Russia – These two key markets have the ability to dramatically affect global pork sales patterns. Russian sources say that more than 200 million rubles ($7.2 billion) has been invested over the past five years to expand and modernize the Russian pork industry. An equal amount is projected to be invested in the coming five years.

The Russian government has set a goal of reaching 85% self-sufficiency in pork production by 2015. The wildcard with Russia is the spread of African swine fever (ASF). Some in the Russian industry say that if ASF remains unchecked, the pork industry investment could be redirected to other areas.

China creates its own gravity in the pork world. Both the world’s largest pork producer and largest consumer, it has the ability to affect global supply and prices. Pork prices in China have risen dramatically – 57% in July alone – accounting for a significant portion of the 6.4% increase in China’s Consumer Price Index over the past year.

China maintains a relatively small pork reserve (220,000 tons) that would not make a significant impact on consumer prices. Many in the industry expect China to increase pork imports in order to relieve the pressure on prices and satisfy domestic demand.

Chinese import data for the first half of 2011 shows imports from the United States far exceed even the record levels set in 2008. The majority of the volume is variety meat, helping to drive prices for U.S. pork offal items to record levels this year. For example, pig feet prices have been more than 80 cents/lb., helping packers pay record prices for hogs.

Russia’s World Trade Organization (WTO) accession – Another potential influence on Russia’s role as a large-scale purchaser of pork is the possibility that it will join the WTO. Adherence to WTO rules could cause Russia to lower tariffs and other trade barriers, or at least administer its trade policies in a more consistent and transparent manner. Bringing Russia into the WTO would subject it to the organization’s dispute settlement process. In the past, Russia has made several decisions regarding pork access that might have been brought before the WTO.

By Erin Daley Borror
U.S. Meat Export Federation Economist