From farm to fork
Global pork outlook: U.S. exports to rebound in 2023By Erin Borror
Global pork trade slowed in 2022 as China rebuilt its herd after learning to live with African swine fever while growth in the rest of the world did not fully offset the decrease in China’s demand. Through September, the year-over-year decline in shipments to China was 1.6 million metric tons, which meant strong competition in other import markets and abundant availability of European and Brazilian pork at cheaper prices.
EU hog prices dropped below U.S. levels in early 2021 and have remained mainly discount to U.S., although Spain’s prices edged above U.S. in October 2022. While trade is in specific cuts of pork, not hogs, the hog prices are indicative of the big picture situation. EU costs of production are much higher than U.S. and have been significantly impacted by the war in Ukraine, which further drove up costs of energy and feed. Drought also drove a 23% decrease in EU corn production. The continuous regulatory burden, including the Farm to Fork Strategy as a part of the EU’S Green Deal, is adding further cost pressures. This is also true of individual member state initiatives, including the Netherland’s nitrogen reductions and Germany’s environmental and animal welfare related regulations. ASF also continues to limit access for EU exports, as 46% of EU production is in member states where ASF has been detected. According to the European Commission’s latest survey (May/June 2022), the combined high production costs and relatively low prices have led to a 4% year-over-year decrease in EU hog inventory and hog slaughter in January through August was also down 4%.
2022 was the first time in recent years when pork production in all major exporting countries declined year-over-year. The 2022 decrease for major exporters will probably mean around 3% less pork was produced than in 2021. But the apparent rebound in China’s production implies global supplies of close to 160 million mt, up from 2021 but still below 2014-2018 levels.
China’s hog prices suggest that supplies have tightened since summer. After averaging 14 yuan/kg in the first half of the year, China’s live hog prices jumped by 77% between June and October, to 28 yuan/kg, before stabilizing into November. Prices in mid-November averaged 25 yuan/kg ($1.60/lb), up 42% from last year. Dalian futures prices are discount to cash, implying prices will moderate toward 17 yuan/kg ($1.10/lb) in summer 2023, and close to costs of production.
Global hog prices in October were higher than 2021, pointing to tighter supplies. Importantly, Mexico’s hog prices were record-high, signaling continued import needs. Mexico approved some Brazilian pork establishments in November, and had already eliminated all import duties on pork muscle cuts in May, helping drive an increase in EU pork exports to Mexico. It remains to be seen how much Brazilian pork will flow to Mexico, but Brazil is likely to make inroads in the frozen category.
The U.S. maintains advantages on chilled combos of pork, including bone-in hams and shoulders. Chilled accounts for 93% of the chilled/frozen pork shipped from the U.S. to Mexico. U.S. pork accounts for 82% of Mexico’s total import volume, followed by Canada and the EU. Looking to 2023, expectations are for only slight increases in pork production in the U.S., Brazil and Canada. This is due mainly to expected productivity gains, as there will be little expansion in sow numbers.
The European Commission forecasts another 1% decline in EU pork production, following the 5% decrease in 2022. EU summer hog inventories suggest production will indeed decrease further, at least in the first part of 2023. The EU is the biggest pork exporter in the world, with production about double that of the U.S., so its production situation has a significant impact on the global market.
Inflation, economic slowdown, U.S. dollarThe global economy is expected to slow in 2023, but thus far economists are still forecasting modest growth, rather than economic contraction. Growth in much of the world is expected to outpace U.S. GDP growth.
The strong U.S. dollar has been a significant headwind for U.S. exports, but the dollar has been on a weaker trend in November. There is a chance it has already peaked, but the dollar is likely to remain a headwind in 2023. The biggest devaluations have been in Colombia, Japan, New Zealand, Britain, South Africa, Korea, the Philippines and the EU. For example, imports in U.S. dollar terms cost 29% more for Colombians and 28% more for Japanese in mid-November compared to a year earlier. The Mexican peso has been a standout, trading at stronger levels than a year ago and remaining remarkably steady in the 19-20 pesos per U.S. dollar range. Overall about half of U.S. pork exports are to markets where the currency is within 10% of year-ago levels, so the strong dollar is important but it is just one of many factors.
One potential major economic change lies in China’s zero-COVID policy, which severely damaged China’s consumer demand in 2022. Sustained and often widespread lockdowns have pummeled the foodservice industry, as consumers have limited their restaurant visits for fear that they will contract COVID and contribute to an intensified lockdown of their community. Catering revenues are also reduced due to the lack of events, gatherings and travel. China’s GDP has only grown by about 3%, well below its 5.5% target.
In November, China announced “optimization” of zero-COVID, at a time of surging COVID cases. New hospitals are being built and efforts are being taken to avoid large-scale lockdowns. Analysts wonder if these are signs of a future change in policy, as China might learn to live with COVID. Further support has also been announced for China’s battered real estate sector, another sign of recognition of the dire economic situation. China’s National People’s Congress will be held in March and there is speculation for further changes in COVID policy after these meetings.
Finally, it is worth noting that President Biden met with President Xi Jinping in November, their first in-person meeting since Biden took office, on the sidelines of the G-20 summit in Bali. According to the White House, they discussed global macroeconomic stability, including debt relief, in addition to covering global food security, climate change and health security.
Consumer demand Pork is expected to continue to benefit from consumer demand for convenient, high-quality, affordable, healthy food. Throughout the pandemic, consumers have increasingly focused on health and nutrition, and this has supported demand for U.S. pork. As consumers return to more active lifestyles, convenience has remained paramount. Further growth is expected for limited-service restaurants and convenience stores, and general retail sales have sustained even as foodservice rebounded in many markets.
Consumers are engaged digitally and the U.S. Meat Export Federation uses an array of online channels to communicate with consumers and the trade. These include videos on recipes, meat cutting, sustainability and showcasing the U.S. farmer. This connection, tailored and deployed by USMEF staff in a wide range of markets, helps educate consumers and enhances demand for U.S. pork.
Consumption of pork has been growing, although with some ASF-related setbacks, and there is room for further growth in the international markets. The combination of consumption growth and U.S. share of consumption are the foundation of future U.S. export growth. The U.S. comparative advantage in feed, grain and oilseed production is paramount and should contribute to U.S. pork accounting for a growing share of global pork consumption.
Rebound in U.S. pork exports expected The combination of improved supply advantages – and thus opportunity to retake market share – plus the potential for overall consumption growth underpin USMEF’s forecasts for a roughly 5% rebound in U.S. pork exports in 2023, with volume approaching 2.8 million mt, valued at more than $8 billion. Shipping issues have been a major constraint for U.S. exporters in 2021 and 2022 but if railroad and West Coast dock worker strikes are avoided, the transportation situation should continue to improve. Hopefully this means a chance to rebuild and grow chilled waterborne exports, which are still mainly to Japan.
Although the U.S. exported less pork in 2022, exports commanded higher prices. This is in contrast to our competitors, who shipped less pork at lower prices. Especially in times of high production costs, exports are essential to industry profitability. Exports are estimated to account for 27% of U.S. pork production in 2022 (including variety meats) and closer to 28% in 2023. Export value equated to an average of $60 per head in January-September 2022, and the estimated value per head is roughly $64 for 2023. But it is absolutely critical that the U.S. remains free of ASF.
Borror is vice president of economic analysis for the U.S. Meat Export Federation.
