As pork producers, our livelihood is truly dependent on our ability to access global markets. We need pork exports to remain strong to pull our pork prices higher. To do this the price of hogs in the importing countries is key. There is little chance that any country will import pork if their domestic prices are lower than the importing price. How are we positioned in China in 2012?

China

China’s domestic hog price is currently 17.35 rmb/kg which is $1.16 US live weight per pound - that is more than double the current U.S. hog prices. Price double tells us China is very short of pork versus demand.

China/Hong Kong pork imports are up 24 per cent in 2011. China/Hong Kong will import over 2.2 mmt of pork in 2011 from all countries. This is the equivalent of 9.8 million hogs, about nine per cent of US production or 1.4 per cent of Chinese production. We expect that with China hog prices over double US prices that China’s lack of supply will lead to continual strong exports from US, Canada, etc… in 2012.

China produced 571.21 million tons of grain in 2011 or about 20 billion bushels; China’s grain production has increased every year in the last five, gaining 2.5 billion bushels per year compared to five years ago.

China has 8000 domestic seed companies. Foreign companies such as Monsanto, Pioneer, have a small market share. These large number of Chinese seed companies have little capacity for research and development. There will be a big bump in China grain production with the use of better seed. We see the same situation in swine genetics. China has a large number of swine breeders but few with technologically advanced performance, selection, research and development. It is why leading Chinese swine producers are purchasing swine genetics from Genesus and other leading advanced global swine genetic companies.

China will continue to try and will probably in time be successful in increasing grain and swine production. But it won’t happen overnight. China’s 1.3 billion People eating 1 pound more pork per capita is six million more hogs needed. To keep it in perspective all imports of pork to China in 2011 were equivalent to 9.8 million hogs or about 1.7 pounds per capita. The bottom line is every North American pork producer’s livelihood is a lot better with a strong Chinese economy and their need for pork.

Other Countries

South Korea was devastated with Foot and Mouth (FMD) disease in 2011. There were about one million sows in the country but when the dust settled after FMD, there were 350,000 sows fewer plus their offspring were gone. Prices exploded reaching well over $500 per head. At Genesus we have been involved with supplying 1,000s of breeding animals to South Korea since the first of June 2011 and the air lift continues. The South Korean industry is still trying to recover. We expect little measureable increase in domestic South Korean hog supply before the fall of 2012. Until then, South Korea will remain a strong import market.

Japan has domestic hog prices of about $400 per hog. It is currently the highest value quality market for US – Canada pork. We expect little change. There are no dynamics in Japan that will increase domestic swine production. Japan’s pork import demand will be steady in 2012.

Mexico is one of the largest markets for US pork. The financial crisis of 2008 and high grain prices were key triggers to take Mexico’s swine production capacity down from one million sows to about 650,000. There has been no recovery in swine production. High feed prices continue, there is next to no agriculture credit in Mexico for expansion. There are about 100 million people in Mexico. In 2012 we see Mexico’s pork imports to stay strong and steady.

The Bottom line: We see no major reason for US – Canada pork exports not to remain excellent in 2012 pulling hog prices higher.

Coming Up

The week of 16 January we will be attending the Banff Pork Seminar and the following week of 23 January we will be at the Iowa Pork Congress. If you are at either please come visit at the Genesus Exhibit and you are invited to attend as our guest at the Genesus Reception – Banff at the Irish Pub Tuesday 17 January at 9 pm; and/or the Genesus Reception – Iowa at the Holiday Inn Mercy (across from the Convention Center) Wednesday, 18 January at 5 pm.

Summary

We are in a Global Market and we are interdependent. Maybe a few years ago when US pork wasn’t exported it didn’t matter. Now currency exchange, global pork price points, the global economic situation, supply capacity, etc… are huge drivers in our livelihood. Global Village is an overused cliché but it captures where we are at in the swine industry today.