Hog prices declined to about $50 per cwt in mid-September from an average of $59 in July as pork production increased seasonally and pork exports continued below earlier expectations. U.S. pork exports had been expected to rise substantially after Taiwanese pork exports to many countries, including Japan, were banned in March following an outbreak of foot and mouth disease (FMD) in Taiwan. Lower pork prices, which should encourage more retail featuring of pork, and rising exports are expected to hold hog prices in the low $50's per cwt this fall. The Hogs and Pigs report to be released on September 26 will provide additional information about prospective pork production for the remainder of 1997 and 1998.

USDA has lowered its forecast for U.S. pork exports for 1997 and 1998, due largely to weaker than anticipated Japanese import demand. The U.S. is expected to export 1.1 billion pounds of pork in 1997, down 12 percent from the previous forecast of 1.2 billion pounds. Exports in 1998 are expected to be 1.2 billion pounds, down 17 percent from the previous forecast of 1.5 billion.

Lower Japanese demand for U.S. pork is likely due to a number of factors. Higher pork prices, both in Japan and in the U.S., particularly since the FMD outbreak in Taiwan, have discouraged U.S. exports to Japan this year. In fact, the Japanese government took the unusual step of waiving the 4.7 percent tariff on pork imports for the month of August to increase available pork supplies, and thus to moderate high domestic prices.

Other factors–intangibles, and difficult to measure–may be moderating demand for U.S. pork in Japan. Japanese consumer reactions to food safety issues, and to differences between U.S. and Asian produced pork. Food safety concerns may have caused a shift in demand away from imported products. It is difficult to determine whether reluctance to consume imported meat products is a permanent shift in Japanese consumer preferences, or whether consumers will resume more normal consumption patterns, as incidences of E-coli outbreaks decline and animal disease problems such as BSE and FMD come under control.

The demand for Japanese pork may be affected by consumer responses to apparent differences in appearance and taste between pork produced in the U.S. and in Asia. Pork produced in Taiwan, for example is darker in color, sweeter in taste, and somewhat tougher in texture than U.S. pork. The absence of the anticipated surge in Japanese demand for U.S. pork products since the FMD outbreak in Taiwan in March, could be a signal that Japanese consumers view U.S. pork as a distinct product, and not as a substitute for pork produced in Taiwan or Japan.

Another factor likely moderating Japanese demand for U.S. pork is increased competition in the Japanese import market, especially since March. Canada and the South Korea, in particular, have been aggressively marketing pork to Japan since last spring.

While export forecasts to Japan have moderated, U.S. shipments to Canada, Mexico, and South Korea have increased so far in 1997, and are expected to continue into 1998. In Canada, U.S. pork exports have filled the gap created by exports of Canadian hogs to the U.S., and concerted efforts by Canadian packers to increase market share in Japan. In Mexico, economic growth has translated into a 38 percent increase in U.S. exports. First half exports to South Korea are 40 percent greater than in 1996. Continued growth is expected, as Korea liberalized the structure of its frozen pork import market on July 1, in accordance with its WTO commitments.

First-half 1997 U.S. imports of Canadian hogs ran 20 percent higher than the same period in 1996, but are expected to moderate in the second half. U.S. hog supplies are expected to increase and Canadian packers should bid more aggressively for hogs to fill new packing capacity and to service developing export markets in Japan.

Beef movement over the Labor Day weekend through mid-September was fairly positive. E-coli was largely relegated to the back pages if mentioned at all. Revised meat processing procedures will likely result in safer products in the future and extended shelf life for fresh beef, so important as the export market strengthens over the next year. Cattle and beef prices strengthened in mid-September, but continue to trade under the shadow of seasonally increasing meat supplies and uncertain domestic and international demand.

Fed cattle marketings will remain large through fall following large early summer feedlot placements. Cattle on feed inventories on August 1 in the 7 monthly reporting States for feedlots with capacity of 1,000 or more head were up 19 percent from a year earlier, but up only 2 percent from 1995. However, cow slaughter, although increasing seasonally, remains well below year-earlier levels. Rains in most areas since early August have improved prospects for fall grazing, including small grain pastures. Dry conditions and an increasingly uncertain grain harvest likely caused larger numbers of heifers to be placed on feed in July through early August, rather than entering the breeding herd. Lower grain prices and improved forage prospects are likely to lead to continued low beef cow slaughter. Federally inspected cattle weights are averaging well above a year earlier as the proportion of cows, particularly beef cows, in the slaughter mix declines. Fed cattle marketings remain strong and feedlots are relatively current, but with a continued larger proportion of heifers in the slaughter mix.

Specials in the fast-food market, as competition for market share increases, are helping to support the processing beef market. Boxed beef prices strengthened to near $107 per cwt in mid-September, well above the early summer lows near $100. However, seasonally rising pork supplies will increase pressure on beef prices, particularly as more pork is featured at retail. Declining prices for pork trimmings, as increased quantities seek a larger share of the processed meat market, will add additional pressure on 50 percent lean beef trimmings from fed cattle.

September 17, 1997 Economic Research Service

USDA, Washington, D.C.

Consensus National Futures and Financial On Line Index

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