Report Highlights

Mexico continued to relax its import restrictions on U.S. bovine products during 2006 and beef imports are expected to reach 375,000 tons in 2007, which is approaching pre-BSE levels. Ongoing negotiations to resume imports of U.S. dairy cattle are expected to result in trade in 2006. Mexico’s live cattle exports are forecast higher in 2007 reflecting improved exportable supplies of calves and good grazing conditions. Mexico’s pork imports are expected to continue rising in 2007 reflecting strong demand. Pork production and imports of live hogs are also expected to increase.

Executive Summary

Mexico’s CY 2007 exports of live cattle are forecast at 1.2 million head, up from the previous year’s estimate of 1.17 million head as exportable supplies of cattle have imp roved and producers continue to rebuild herds. Exportable supplies of calves are good and grazing conditions have benefited from favorable weather conditions.

On-going negotiations between the United States and Mexico are expected to soon allow imports of U.S. dairy cattle, and Mexico continues to loosen bovine import restrictions imposed following the detection of BSE in 2003. Beef imports are forecast to reach pre-BSE levels at 375,000 MT during CY 2007, up 10,000 MT from CY 2006. Imports of pork continue to climb and are forecast at 460,000 MT during CY 2007. Imports of live hogs are forecast to reach 225,000 head in 2006, still far below the authorized quota of 462,374 head.

SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING

Swine/Pork Production
Pork production continues to expand, fueled in large part by attractive prices during 2005 and 2006 and continued modernization, concentration, and investment within the pork industry. An increase in the number of specialized swine TIF plants, coupled with further integration of swine producer associations in slaughtering and marketing activities, is expected to contribute to a further expansion of pork production in the future. Expectations of stronger prices next year will likely push slaughter numbers higher in 2007. Mexico’s pork industry continues to be affected by U.S. prices and price changes in the U.S. market will likely affect profitability and production decisions in Mexico during the upcoming year.

Overall hog numbers and slaughter have remained relatively stable in recent years, a trend that is expected to continue in 2007. Underlying this trend has been a shift in the composition of slaughter from hogs supplied by the informal sector to those supplied by larger and more technically advanced producers as the trend towards more modern production practices continues. Lower costs of production relative to the informal sector, better profitability, and strong prices during 2005 and 2006 are helping to encourage investment and consolidation in the pork sector. Official estimates indicate that the share of in situ or informal slaughter remains somewhere between 30 to 35 percent of slaughter.

Consequently, slaughter numbers and inventories are forecast to increase in 2007. Official estimates indicate that hog slaughter in federally inspected plants (TIF) reached 4.6 million head in 2005, compared to 4.5 million in 2004. It appears that this ongoing trend is being driven by Mexico’s growing supermarket and meat processing sectors, which require better quality, more uniformity, and consistency in their meat products. TIF plants are in a better position to provide such products than Mexico’s municipal and in situ slaughter operations, which combined still account for a significant portion of hog slaughter.

Current U.S. price forecasts are still relatively attractive compared to the cost of production in Mexico and strong and growing demand from the domestic market is expected to help support domestic production growth.

Swine/Pork Consumption
Pork consumption for 2007 is expected to continue increasing as demand for processed meats (such as sausages, and hams) rises faster than demand for fresh and frozen pork cuts, reflecting an important structural change in the composition of consumption. However, while the consumption of pork cuts is growing at a slower pace, this segment still represents the bulk of overall consumption in Mexico.

Per capita meat consumption is relatively low in Mexico when compared to the Unites States and Canada, and the potential for growth as incomes rise is considerable. Nonetheless pork will continue to face stiff competition from lower priced poultry products.

Swine/Pork Trade
Imports of live hogs are forecast to reach 225,000 head in 2007 as processors seek to augment domestic hog slaughter to meet the growing demand for pork. Pork meat imports for 2007 are forecast to rise to 460,000 MT (CWE). Domestic sausage companies continue to use more imported U.S. pork variety meats and mechanically de-boned poultry meat due to attractive prices and high quality. Domestically produced sausages, processed foods, and lunch meats containing imported ingredients, as well as imported sausages and pork products, continue to gain market niches in Mexico, particularly among middle and upperincome consumers. 2005 pork imports have been revised upward reflecting official data.

Mexico’s pork exports are forecast to reach 70,000 MT (CWE) in 2007, mostly to Japan. While animal health concerns and relatively high prices have limited Mexican pork exports, exporters have established a niche market in Japan. Sales to Japan are expected to continue growing in the future as exporters take advantage of Mexico’s free trade agreement with Japan. Mexico’s pork exporters enjoy tariff-rate quota access in Japan, see right.

Mexican producers and animal health officials are seeking to have additional areas declared free of Classical Swine Fever (CSF). Currently, the states of Sonora, Quintana Roo, Campeche, Baja California, Baja California Sur, Chihuahua, Sinaloa, and Yucatan have been declared low risk or free of CSF by USDA. Regionalization requests are also under review by USDA officials for the states of Nayarit, Coahuila, Nuevo Leon, Tamaulipas, and Durango.

Swine/Pork Policy
The Mexican Council of Pork Producers (CMP) continues to work with the Mexican Government to develop programs to enhance the competitiveness of domestic pork producers by improving efficiency, quality, product differentiation, and marketing methods. One overriding objective among the pork producers seems to be to help small and mediumsized producers reach viable scales of production, possibly by establishing production contracts with larger pork processors and slaughterhouses. To date, the Mexican Government has yet to establish specific funding or support programs to aid smaller hog producers.

Swine/Pork Marketing
Good marketing opportunities for U.S. pork exist in Mexico’s cold cut and supermarket industries catering to middle and upper income consumers. Educational seminars through supermarket chains, restaurants, and hotels appear to be an effective way to increase awareness of the wide variety of U.S. pork cuts available.

U.S. livestock, beef and pork exporters, new to the Mexican market, are also encouraged to contact the following trade organizations for further market information.

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