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Good Pork Prices but Grain Price Rise Predicted

by 5m Editor
13 January 2012, at 10:47am

MEXICO - This year will continue the pressure on the prices of commodities such as grains, especially corn and wheat but also we expect a good year for pork price in Mexico, writes Fernando Ortiz, Ibero-America Business Development - Genesus.

Some ag-economist experts have said this year Mexico could be facing grain shortages due to climate change and lower expectations for economic growth, pushing up international prices of commodities. From a human feed consumption standpoint this is not good news considering the tremendous amount of corn involved in the Mexican gastronomy “In Mexico, an increase in the international price of corn, will involve an increase in tortilla prices given the high import content it has“ they said.

Pressures are also expected by the devaluation of the peso against the dollar. In the last half of 2011 Mexican peso depreciated by 19.32 per cent, an increase which could be incorporated into the final price of imported grains.

Hector Salazar, president of the National Confederation of Corn Growers of Mexico (CNAPMM), has predicted greater increases in the price of grains. "This year will be difficult because only in Sinaloa, the region that produces corn has cut in 50 per cent the planted area, which is around 2000 hectares (5,000 acres), due to some environmental factors such as lack of water and mid-December frosty weather that has affected the whole crop productivity.

The first week of this year a tonne of maize in the local market reached a price of 6,000 pesos ($440 US/tm), compared to the fourth quarter of 2011, corn prices were around 5,000 pesos ($367 US) which was about 20 per cent lower compared with today corn prices.

According to the grain trader Cargill, given the high grain prices and high prices of different inputs for the supply chain such as ethanol in most of the corn areas, it is more likely that the US corn growers will be increasing their planting area due to the attractiveness of international prices. Although prices have remained high due to the extraordinary situation that was experienced during the crop cycles of 2011 and is may not be known as the production of this year, these prices are maintained at the current range. As a result of expected increase in the price of corn is expected that the price of pork will increase even more this year.

Pork prices in Mexico City have been steady over the last three weeks on a higher level of 26.23 pesos/kg ($87.97 liveweight/lb).

Mexican Livestock Producers Association has estimated a shortage of red meats (beef and pork) reaching up to 20 per cent in the first quarter, projecting a price increase in similar percentage. "The main problem has been caused because of most of the small and some medium producers have quit as a consequence of higher feed prices they could not afford“ they said.

Alejandro Ramirez, director of the Confederation of Mexican Hog Producers said that this year the main pork price driver will be, once again, the cost of corn imported from the United States. "For the swine industry, this input represents 64 per cent of the cost of production, which, at the end of 2011, it increased the cost of production by 25 per cent," he said.

In order to shrink a little bit risks associated to price the Mexican pork producers are working hard to gain some ground in international markets focusing especially in markets such as the United States, Japan, China and Korea. Five Mexican pork plants were already authorized to enter the Chinese market. The consumption of pork in China, the world's largest market, grew at rate of 20 per cent in the last six months and doubled in 10 years (48 lbs per person per year). There are other geographic areas of opportunity for Mexican pork producers through trade; after the per capita consumption in the EU exceeds 50 kilograms, against the 14 kilos of Mexico, while in Central America is four kilos.

Mexican packing plants that requested authorization to enter China are Sonora Agropecuaria, Frigorifica Agropecuaria Sonorense, Alimentos Grole, Frigorifico Kowi, Ganaderia Integral, Groupo Bafar, Sukarne, Empacadora Ganadera de Tamaulipas and Grupo Porcicola Mexicano.

Desertion of pork producers as a result of financial trouble is a problem of important magnitude. Over the last 2 years about 580 small producers have gone, leaving behind their main source of family income, this figure represents 10 per cent of the total small producers. On the other hand the Mexican swine industry growth reached only 1.5 per cent last year, compared to 30 per cent increase in pork imports. For this year it is estimated that Mexico will keep the 2011 level in terms of pork production and exportations. Last year Mexico produced 1 million 200,000 tons of pork representing 15 million hogs; its exportations were 60,000 tons.

Mexico’s packing plants will continue to use imported US pork variety meats, lard and by-products. Despite the political and domestic pressures generated by Mexican pork producers, meat processors must continue to import pork products because domestic production is not sufficient to meet their needs

As Christopher Manns, chairman of Broker / TGI-Commodities, says, "The scenario is uncertain for the grain market, because there is no clearness on the resolution of the debt problem in the EU." Meanwhile, a possible military conflict in the Middle East and the expectation of a weakening dollar could boost the price of basic foods. Speculation could contribute 50 per cent on increases in raw material costs. Pork consumption is forecast to increase more than one per cent in 2012. However, the increase is tied to price and will depend on retailers’ pricing strategies. Some retailers are selling pork at higher prices, claiming they are merely passing on higher domestic prices as well as the cost of retaliatory duties on imported US pork.

Even though the economy and gross family income have recovered somewhat, pork consumption will increase at a rate lower than that of beef, mostly due to higher prices and a substitution effect by consumers who see poultry as a cheaper protein.

Genesus Global Market Report
Prices for week of 2 January 2012
Country Domestic price
(own currency)
US$
(per pound liveweight)
USA (Iowa-Minnesota) 80.87¢
US$/lb carcass
59.84¢
Canada (Ontario) 1.50
C$/kg carcass
53.74¢
Mexico (DF) 26.23
MXP/kg liveweight
87.97¢
Brazil (south region) 2.84
BRR/kg liveweight
69.96¢
Russia 92
RUB/kg liveweight
$1.31
China 17.34
RMB/kg liveweight
$1.24
Spain 1.12
€/kg liveweight
65.10¢