US production pushing exports higher

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US pork production in the first four months of 2018 was nearly four million tonnes, a 4.6% increase over the same period last year. The industry is therefore on track to meet the USDA forecast of 12.2 million tonnes in 2018, compared with 11.6 million tonnes in 2017.

Reports suggest domestic consumer demand has been slower recently, thanks to large supplies of competing meats, and unseasonably cool, damp spring weather. When combined with the increase in pork production, this has resulted in lower pork wholesale prices, which are below both year earlier and three-year average levels. Similarly, US pig prices also hit their seasonal low in mid-April, and in early May were the same as year-earlier levels. Anticipated warmer weather is expected to provide a boost to seasonal consumer demand. However, limited processor demand, due to capacity growing more gradually than expected, may weigh on farmgate prices for the rest of 2018.

The lack of vitality in domestic consumer demand may have boosted supplies available for export. Data from the US Department of Commerce shows exports of fresh/frozen pork rose by 5.9% year-on-year in the first quarter of 2018, to 468,000 tonnes.

Shipments to Mexico, the US’ biggest customer, were 0.6% lower in the first quarter than a year ago, at 160,000 tonnes. This was possibly due in part to Mexico’s strong imports of US turkey products, both of which are used primarily as inputs in further processing. Exports to Japan were also 1.7% lower year on year, perhaps because of the competitiveness of European exports at this time. However, higher exports to South Korea more than offset the lower shipments to Mexico and Japan. At 64,000 tonnes, exports to South Korea were almost 35% higher than a year ago, helped by a tight supply situation in that country.

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In the period March to May, reports suggest that US producers intend to farrow 3.08 million sows, 2% more than during the same period last year. If realised, this will sustain the increase in production seen so far this year. The USDA is expecting exports in the third quarter to be nearly 6% higher than year earlier levels, increasing to 9% higher in the last quarter. This coincides with the seasonal peak in pork production.

Achieving this growth will not be without challenges, especially considering recent US trade politics. Retaliatory tariffs on US exports of pork and pig offal to China of 25% were already imposed in April. This market accounted for around 10% of total US pork and pig offal exports in Q1 2018. Whether this tariff will remain in place is uncertain, however Mexico has also recently announced tariffs on pork products from the US. This encompasses a 10% tariff on effectively all chilled/frozen pork products, which rises to 20% by 5 July. If Mexico persists with this tariff, it could have a significant detrimental impact on the US pork industry as Mexico typically receives around a third of all US pork exports. On top of this, South Korean import demand is expected to abate later this year, as its own domestic production picks up.

In light of these challenges, the US may find that further price discounts are necessary to achieve the export volumes anticipated this year as their production expands. As the US is one of the EU’s main competitors on a global scale, as can be seen in Japanese import figures, and so the increase in production in the US could keep the pressure on EU exports, and EU pig prices, for the rest of the year.

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Duncan Wyatt, Lead Analyst

duncan.wyatt@ahdb.org.uk  0247 647 8856