The lack of a TPP agreement maintains the status quo, explained Brent Stuart, founding partner of Denver-based Global AgriTrends. US pork exports do very well in Japan under the status quo.
“US pork is very competitive in Japan,” Stuart noted. “We have a huge benefit in shipping chilled pork to Japan that the European producers technologically cannot do. The lack of the agreement, I don’t think, significantly shifts our market share negatively there like it may in the beef industry.”
The beef industry faces competitive pressure from Australia, which already has a free trade agreement with Japan.
The TPP is a regional trade deal that includes the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Under the agreement, tariffs on US pork exports to Japan, which are as high as 20 percent, will be phased out over some years. Roughly 22 percent of pork produced in the US is exported to key markets such as Japan, Mexico, Korea and 121 other foreign countries.
So, news that Trump intends to scrap TPP is disappointing news for the pork industry, which could have improved its price position relative to domestic pork sold in Japan, according to Stuart.
“I was just looking at the retail price of pork loins, and if you’re a Japanese consumer and you go in a grocery store today in Tokyo and try and buy pork loin, the average retail price of imported pork loins in Japan, including US, is over $6 a pound,” he said. “Domestic pork loins are over $11 a pound.
“We would have loved that TPP agreement, which would have made us a little more competitive vis-à-vis domestic production,” he continued. “It would have taken away some of their protection around their domestic pork industry.”
Nevertheless, the US will continue to ship a lot of pork to Japan which is good news as pork production heads into high gear heading into 2017-2018. Lower prices for corn, a key livestock feed ingredient, are fueling increases in pork production, according to Len Steiner of Steiner Consulting Group, an economic and commodity trading firm in Manchester, New Hampshire.
“By 2018, we expect beef, pork and poultry output to exceed 101 billion pounds,” Steiner said. “You have to go back to the mid-1990s to find a similar four-year jump in meat production.
“In 2016, US pork production will set an all-time record at 24.96 billion pounds, with more pork expected in 2017,” Steiner added. “We’re currently estimating 25.6 billion pounds.”
However, processing capacity has not kept pace with growth in supplies of pork. Steiner said pork production is expected to exceed beef production this year.
“As supplies have expanded, processing has lagged a bit behind,” he noted. “In the short-term, that has put downward pressure on hog prices this fall. But new plants are expected to open in the next 18 months, which should alleviate some of the pressure and help narrow the gap between hog prices and the price of pork at wholesale and retail.”
In 2016, more than 20 percent of pork produced in the US goes to export markets compared to about 16 percent for chicken and less than 10 percent for beef and turkey. Exports remain key for a healthy and profitable US pork industry, Steiner said.
Another important market for US pork exports is Mexico, which is the leading importer of US uncured hams. Mexico will be important to US pork exports as the industry ramps up pork production in the coming months.
“Although there are certain headwinds for US exports — the strong dollar…weaker demand in some emerging markets and increased 2016 competition from Europe which we expect to subside somewhat in 2017 — the reality is that US hog producers are some of the most efficient, low-cost producers in the world and should be able to successfully compete in the global market place as an internationally recognized safe and nutritious product.”
Stuart noted that US pork and variety meat exports are up 5 percent in tonnage year-to-date, fueled by growth in China, “where an actual, physical pork gap in China led to high prices and import surges in 2016.”
The high prices in China led to increased pork production, but that cycle is starting to turn, he said.
“The China market may slow here in the short term, even into 2017,” he said. “But the market provides excellent long-term prospects for US pork.”