Pork and Swine: 2013 Forecast overview Oct. 24, 2012
World Pork Production Virtually Flat as High Feed Costs Temper Growth
Global production is forecast nominally higher to a record 104.7 million tons. Rising feed costs, which shrink profit margins, will only be partially offset by improving efficiencies and intervening government programs in some countries.
China, accounting for nearly half of world production, is forecast 1 percent higher to a record 52.0 million tons. The anemic growth is largely attributed to weaker consumer demand resulting from relatively slow economic growth, which, squeezed by rising feed costs, has tightened producer margins. Poor hog prices in 2012 slowed expansion of swine production facilities and further encouraged small-scale producers to exit the industry. This is expected to result in nominally lower breeding stock in 2013 and only a slight growth in hogs available for slaughter. However, production efficiencies continue to improve as large and modern farms expand at a faster pace than the exit of backyard operations. The government also continues to support the pork industry through productive sow subsidies, boosting breeding stock imports to record levels, and occasional pork purchases in an effort to support prices.
Brazil’s production is expected to grow 2 percent, to a record 3.3 million tons, supported mostly by strong international demand and producer optimism for continued recovery in export markets. However, a major concern for hog producers is the recent increase in feed grain prices, which could squeeze margins. The government has already intervened in the market with subsidized corn auctions to protect the industry, extended deadlines for credit payment, and temporarily suspended state taxes.
Russia is expected to increase production by 1 percent to 2.1 million tons, although higher feed grain prices are expected to constrain expansion. Large farms are increasing production through economies of size and scale, supported by government programs. However, small private farms, many in regions affected by outbreaks of African Swine Fever, have been forced to exit the industry.
EU production is expected to ease by 1 percent to 22.6 million tons as the industry copes with rising feed costs and stringent EU animal husbandry requirements. These requirements are resulting in a restructuring of the industry, with the most inefficient commercial farms exiting production. The pig crop is expected to remain constant, while higher feed costs cause lighter slaughter weights.
The United States is forecast down 1 percent to 10.4 million tons as high feed costs are expected to dampen production through reductions in farrowing and lighter slaughter weights as producers attempt to minimize feed costs. Only modest reductions to the breeding stock are forecast, leaving swine producers prepared to accelerate pig production in the latter part of 2013, when the feed grain outlook is expected to be better.
Canada’s production is lowered 1 percent to 1.8 million tons as high feed costs and reduced demand for feeder hogs in the United States are expected to adversely impact the recovery in the hog sector, which began in early 2012. Faced with higher input costs and financial difficulties, some smaller producers are expected to liquidate inventories beginning late 2012 and into 2013, resulting in a smaller pig crop and slaughter in 2013. Slaughter weights will reflect producers’ attempts to mitigate feed costs.
Japan’s output is projected down 1 percent to 1.3 million tons as producer margins are negatively impacted by high feed costs coupled with low pork prices. Reduced breeding stock leads to a smaller pig crop, while rising feed costs push producers to slaughter at lighter weights. Weak consumer demand caused by slow income growth is expected to pressure prices.
Mexico’s production is expected to fall 1 percent to 1.2 million tons as rising feed costs are expected to result in lower slaughter weights despite government support. Hog producers continue to improve efficiency through the incorporation of new breeding lines that are better able to adapt to the Mexican production system and enhanced farm management techniques, mitigating the decline in sow numbers.
South Korea is forecast 2 percent lower to 1.1 million tons as producer margins are squeezed by record high feed grain prices. Other factors dampening production are regulations for hog operations including provincial laws designating areas restricted from livestock production, animal space requirements, stricter requirements for manure disposal, FMD vaccination requirements, and traceability.
Global Pork Trade Continues Slow Expansion
Imports are expected to rise 1 percent to a record 6.8 million tons with greater demand from countries where growth in domestic production cannot keep pace with rising demand.
China’s imports jump 5 percent to a record 815,000 tons, continuing on a new, higher plain. Whereas disease outbreaks caused the surges in 2008 and 2011, the reason for larger volumes forecast in 2013 is slow domestic production growth not keeping pace with rising demand. Import growth is further supported by more competitive prices vis-à-vis domestic pork and constant reports of domestic food safety cases. It is worth noting that although China is the world’s 3rd largest importer, imported pork accounts for less than 2 percent of consumption.
Russia is forecast to grow by 3 percent to 1.0 million tons, mostly from Belarus, which uses its privilege as a member of the Customs Union to export duty-free products to Russia. Additionally, under Russia’s WTO accession, in-quota tariff rates drop from 15 to 0 percent, which is expected to have a positive effect on trade. Larger volumes are also expected from minor suppliers Chile and Ukraine, as they expand their footholds in the Russian market.
Mexico’s imports are forecast up 2 percent to a record 690,000 tons due largely to flat domestic production. Pork’s competitive pricing vis-à-vis beef and changing consumer preferences are expected to support demand. The majority of Mexico’s pork imports consists of hams and mechanically deboned meat for the preparation of sausages, deli hams, and other cold cuts. There is growing consumption of these products by the middle and upper income consumers.
South Korea is raised by 1 percent to 505,000 tons as stagnant domestic production is expected to encourage a small growth in imports. A new plain may be established that is lower than record 2011 imports in response to the FMD outbreak, yet significantly higher than trade before that. Imports will be more competitive with domestic pork as tariff rates for U.S. and EU will be incrementally lower in accordance with Free Trade Agreement tariff reduction schedules.
Ukraine falls 11 percent to 200,000 tons following unusually large volumes in 2012. Imports are highly regulated by the government and sensitive to consumer disposable income as well as prices of domestically produced meats.
U.S. imports are forecast 1 percent lower to 363,000 tons due principally to tight supplies as well as an unfavorable exchange rate in the major supplier, Canada.
Japan continues to be the world’s leading pork importer with volumes forecast flat at 1.3 million tons as competition between low-priced domestic pork and imported chilled pork intensifies. Additionally, demand is tempered by slow income growth and price conscious consumers.
EU exports are forcast up 4 percent to a record 2.4 million tons due to strong demand from Russia and China and the low value of the Euro and Danish Kroner. A growing number of member states are eligible to ship to China, which is expected to further support exports. Demand from other major markets is expected to remain static. Elimination of export restitutions for pork by the European Commission is not expected to significanlty decrease their competitiveness in third markets.
Brazil is expected to expand by 7 percent to 645,000 tons mainly on strong demand from a number of importers, mainly Hong Kong, Angola, Argentina, and Singapore, as an expected weaker Real enhances competitiveness. Exporters are also focusing on expanding sales to China, a newly opened market.
U.S. exports are forecast up 1 percent to a record 2.4 million tons based on strong Mexican and Russian demand and incremental increases in shipments to major Asian markets. U.S. product will face greater competition from European and Brazilian pork in several markets, but is expected to be very competitive with Canadian pork.
Following a record year, Canada’s exports are expected to decline by 4 percent to 1.2 million tons based on limited exportable supplies and unfavorable exchange rates. Canadian pork is expected to be less competitive vis-à-vis imports from competitors in Japan and Russia, and domestic production in the United States.
Although a net importer, China’s shipments are forecast down 7 percent to 200,000 tons due to weak demand from Asian markets. China exports fresh and processed products to Hong Kong, and processed products to Japan and other Asian markets.