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Dr. Dermot Hayes - Pork Export Possibilities and Projections

Dr. Dermot Hayes - Pork Export Possibilities and Projections



Pork Export Possibilities and Projections - Dr. Dermot Hayes, Professor, Department of Economics, Iowa State University , from the 2012 Minnesota Pork Congress, January 18-19, Minneapolis, MN, USA.

Pork Export Possibilities and Projections - Dr. Dermot Hayes, Professor, Department of Economics, Iowa State University , from the 2012 Minnesota Pork Congress, January 18-19, Minneapolis, MN, USA.



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    Dr. Dermot Hayes - Pork Export Possibilities and Projections Dr. Dermot Hayes - Pork Export Possibilities and Projections Presentation Transcript

    • Export Projections and Associated Risks Dermot Hayes Iowa State University
    • Overview
      • Big Picture
        • Transportation cost economics
        • Taste differences
      • Competitive position and the importance of exchange rates
      • Country by country analysis
        • China
        • Japan
        • S. Korea
        • Mexico
        • Columbia
        • Philippines
        • Australia/New Zealand
      • Importance of disease in Asia
      • Risks associated with export expansion
    • Transportation costs
      • It is far more expensive to ship corn and soybeans than the meat equivalent
      • Instead of shipping feed all the way to an interior livestock producer, we can ship the meat directly into the ports where the consumers live
      • Large scale grain movements can usually be traced back to market interventions; in particular many countries allow feed to enter without restriction, but restrict meat imports
    • Proportion of total US meat exported
    • Chicken heads are a delicacy
    • Free Trade Agreements
      • Recent agreements with S. Korea and Columbia have added 100 million customers for US value added products
      • These agreements seem to be contagious
      • Japan is now very interested in TPP
    • Competition with the EU
      • Despite a dramatic weakening of the Euro, the US still has 20% cost advantage
      • This could be eliminated if the Euro continues to fall
      • Remember, Europe has a surplus of feed grains and excellent producers and pork marketers
      • In the near term, Europe will dominate the belly market and share the VM and low cost muscle meat markets
    • How (Asia) is Changing US Agriculture
      • Asia needs to import “acres” of land intensive products
        • Economic growth and diet
        • Move away from backyard livestock production towards commercial feed
        • Expansion of cities and the need to add infrastructure
        • Loss of labor willing to grow land intensive crops on mountainsides
      • Will they buy meat or feed grains?
      • Taste differences Asia will probably import feed grains if it can control disease, and import pork if it cannot
    • China-US Comparison
    • Miles of new construction outside every city
    • Agricultural Resources
      • China has gone below the politically sensitive 120 million hectares (296 million acres), has at most 275 million acres, a lot of which is poor quality land that cannot be mechanized and should not be farmed
      • The US has about 360 million acres in crops and about 400 million acres of pasture, total agricultural area of almost a billion acres
      • Yet China feeds almost five times the population, the key to this success is the creative Chinese diet, and the use of labor to substitute for crop land and animal feed
      • China has given up on the most land intensive products (beef cotton, sugar and soybeans) and is importing some corn
    • Backyard units
      • At least half of the pork in China comes from smaller units these farms turn labor into feed
      • With 9% to 11% economic growth, China has better things to do with labor than raise pigs on household waste
      • This system requires labor, small slaughterhouses, wet markets and a willingness to buy non standardized product
      • Backyard pig production disappears quickly once households can afford a car to drive to the grocery store and to find employment
      • Current mortality in Chinese pork production is reported to be very high due to disease
    • Other crops
      • China has imported 3.5 million tons of corn so far this year, this is approximately one million acres
      • In addition, it now imports 20% of its sugar needs
      • In the fall of 2011 China has been importing the meat from more than one million pigs each month
      • On an annual basis this is equivalent to 5.5 million tons of corn
    • Intervention Costs for China
      • In 2011, 1.46% of the total 6.5% increase in the CPI was due to pork prices, this means that more than 20% of the overall inflation problem is directly attributed to pork. Hence the phrase the China Pig Index (CPI)
      • Food price inflation may cause political instability
      • Adding more pigs will probably cause the disease problem to get worse, more disease means higher production costs
      • Building a modern pig industry in China is a huge waste of grain, energy and people
      • China will eventually have to violate its WTO commitments, if it has not done so already
    • Why it matters
      • If China imports corn and soybeans it drives up feed costs in the US
      • If China continues to buy “parts” it actually reduces the cost of producing US loins and other muscle cuts
      • If China imports shoulders the US pork industry will need to expand
      • The US Midwest can make better use of the manure than anywhere else in the world
    • China is driving US prices for some cuts
    • S. Korean Pork Market 1980:2024
    • Competitive Position with a global quota and without SPS issues
      • The binding US quota is a valuable asset and companies do not need to compete on price if they know it will fill, this has eroded the US price advantage
      • US companies are so protective of their quota that they incur huge costs to avoid being delisted, this has exaggerated the impact of the tetracycline restriction
      • At current exchange rates the US is the worlds most competitive pork producer
      • If the quota and SPS problems went away the US would capture market share from Brazil, Canada and the EU
      • Total sales would rival those of Germany today, 140,000 tons and $400 million dollars
    • Density Density Density
    • Tons of Carcass per Sow per Year
    • Histogram of Expected Gross Margin per Hog in 2005: Expected Margin over costs: $21 per Animal
    • Histogram of Expected Gross Margin per Hog in 2012: Expected Margin over costs: $21 per Animal
    • Summary
      • Japan, stagnant unless we get TPP
        • TPP with Japan, and without Europe and Canada would be great!
      • Mexico, continued growth especially when we need them, i.e. when our prices are low
      • China is a wild card, but do not be surprised if exports continue
      • Huge new opportunity in Columbia
      • Philippines has enormous long term potential and short term headaches
      • Australia and New Zealand, huge new potential under TPP otherwise markets are limited by sanitary barriers
      • Vietnam is a place we can sell bones, blood, lungs etc.( if we are allowed)
      • Russia is once again a promising market, but is headed for overall self sufficiency if it can get disease in check