OUTLOOK US SWINE INDUSTRY 2013

Artículo realizado en exclusiva para INFOPORK

Autores: Fernando Gomez L., Brian Melody and Dr. Jose Henrique Piva

During 2013, the U.S pork market has had important challenges, the first was to recover from the downward margin trend from 2012 due to high grain price and market volatility, the second is the new health challenge of PEDv and the future costs involved in outbreaks, third is the utilization of the by-products like distillers to reduce the diets costs, fourth is to achieve the export requirements for new markets like China or Russia. Moreover, the high temperature of 2012 summer had a negative impact on number of pigs available for sale in 2013 and finally the improvement in the environmental care, safety and animal welfare protocols. Below a summary about the most relevant information happened during 2013 in the U.S Hog Market.

DOMESTIC MARKET

When reviewing the U.S. hog prices in the last 3 years, it is possible to see the fall of the hog price from 3rd quarter 2011 until 4th quarter 2012 by 18%, where the price began to recover, realized in 3rd QTR 2013 a 15% improvement versus the same period in 2012 (Table 1 and 2). Furthermore, the hog price average in Jan-Oct was 5.4% better in 2013 than 2012. USDA has estimated for 4th quarter 2013 (Sep-Nov) hog price $63-$65/cwt, more than 9% above a year ago and with production growth in 2014, prices for 1Q and 2Q of 2014 has been estimated in $59-$63 and $61-$67 with an average annual price of $59-$63, this is 6% less than 2013. Moreover, Rabobank estimates 3% decrease in price during 2014 but 20% cheaper feed cost, its outlook for hog margins is showed in graph 1.

Table 1

Data sources, USDA Economic Research Service calculations based on Bureau of Labor Statistics and USDA Agricultural Marketing Service Data

Table 2

Data sources, USDA Economic Research Service calculations based on Bureau of Labor Statistics and USDA Agricultural Marketing Service Data

Graph 1

EXPORTS

During January-September 2013 the volume and value exported by the Unites States dropped by 5% versus the same period in 2012 (Table 3). Regarding value, the top 5 destinations are Japan, Mexico, China/Hong Kong, Canada and South Korea representing over 80% of the US Export Pork. Since 2003, US pork Export has grown by 300% reaching $2.3 billion in 2012, where China improved from $60 million to 886 million (14.7 times) and the top five grew on average by 2.7 times (Graph 2).

Table 3

Graph 2

IMPORTS

In the last 10 years, Canada
represents 80% of the US pork imports (graph 3). Since 2004, U.S pork import
has had a downward trend, falling by 32%, however in the period
January-September 2013 the volume imported have grew by 8.3% vs 2012 ( Table 4)

Table 4

Graph 3

INTERNATIONAL MARKET OPPORTUNITIES

In relation to pork market opportunities, Unites States is taking steps to negotiate an Free Trade Agreement with 27 countries in EU in which the pork consumption is 20 million metric tons per year and today U.S is exporting less than a quarter of 1 percent of total EU consumption.

Many countries (20 including EU) requires that US pork meat tested for trichinae which impacts US pork’s competiveness in the export market, however in Colombia and Chile there is important progress to remove that requirement. In May 2013, the Chilean pork initiated a “safeguard” investigation on frozen pork, they claimed serious injury in the domestic market, but in October 2013, Chile’s committee on trade distortions determined that no action should be taken to limit pork imports, including those from the United States. Central and South America is in the 6th position in the US pork exports and until September where we see the market growing (+29%).

In September 2013 after approval by US Committee on Foreign Investment, Smithfield Foods Inc announced the approval of merger with Shuanghui International Holding Limited to meet the China’s rising demand for meat. In early, 2013 the china company offered $4.7bn for the Smithfield Foods in cash, resulting in each share receiving $34.00. This merger could bring important opportunities for US swine industry.

The Mandatory Country of Origin Labeling (COOL) regulation has been a controversial commercial rule with complex requirements of the USDA against foreign meat and livestock, especially important to markets such as Canada and Mexico. It is expected at the end of the year a compliance panel will circulate its report about if the new rules from USDA are in compliance with the World Trade Organization’s 2012 ruling. From its peak, the number of pigs entering USA from Canada numbered 3.2M pigs over 110 lbs in 2007; today that number has shrunk to less than 750.000 (projected) in 2013.

GRAIN PRODUCTION

A great 2013 grain crop of corn and soybeans helped to reduce high price in the second third quarter of 2013. Corn crop reach almost 14B bushels (365M metric tones) in 2013 against a 10.78B bushel (280.2M metric tones) in 2012. Soybean crop reach 3.42B bushels (88.7M metric tones) in 2013 against 3.2B bushels (83M metric tones) in 2012. Projections show an increase of 5.4% corn usage to produce Ethanol.

EXPANSION

Beside the different challenges old small sow farms have being replaced by large brand new sow farms – in general 2500 to 6000 sows unit most of them build under new approach using pen gestation (some since sows are bred but most after 35 days of gestation. In total over 80.000 new sows space can be added in 2013.

After many years of no nursery being built, mainly due to labor issues some production system start to building new nurseries, but a significant addition of wean to finish space has being added.

HEALTH STATUS UPDATE

During 2013, pig production has been affected by Porcine Epidemic Diarrhea – PEDv. The last data reported for National Animal Health Laboratory Network says that as of Nov. 24, the PED virus has been confirmed in 1,373 farms and 20 states (graphs 4 and 5). In November 2013, in a Rabobank presentation, Will Sawyer of Animal Protein presented a graph with PEDv impact in number of the market pigs (graph 6) but really the effect in the swine industry is still unknown. In the case of PRRS, this disease continues affecting to the industry and the last estimation cost of $ 664 million/yr was reported by Dr. Morrison in the Leman Conference 2012. Over the last 20 years; different strategies to mitigate the effect has being implement internationally and results are not as good as expected.

Graph 4

Graph 5

Graph
6

In general PEDv is causing a significant impact on number of piglets weaned with estimated annual losses due an outbreak between 10% and 12%.

CHALLENGES

In addition to ongoing health challenges the U.S swine industry is working to achieve important steps in consolidating the Animal Welfare, Environmental Care, and Safety in farms. In the short/medium term; other the main points in the industry agenda are; Pen gestation, Antibiotics, Beta-Agonist, Castration, Tail Docking and Euthanasia. Sustainability and PQA Plus are being worked in this moment as well.

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