The long-term uptrend in pork exports has been accelerating over the past few years. Strong buying interest from foreign countries, especially Japan, was a big reason why cash hog prices exceeded projections throughout 1996.

Thanks to tremendous growth the past few years, the United States has gone from a distant fourth among major pork exporting nations to second. We still trail Denmark by a wide margin, but there's no question which country is gaining global market share. As shown on the graphic, USDA has predicted more than a billion pounds of U.S. pork will be exported this year, which is about 6.5% of total production. As recently as 1991, the U.S. failed to sell 300,000 pounds of pork to foreign buyers and it wasn't until 1994 that exports were strong enough to utilize 3% of total production. Making this unprecedented rise in export shipments even more significant is the fact it has occurred at the same time pork imports have been declining. For the first time since 1952, the United States was a net exporter of pork in 1995. Having a positive trade balance puts pork prices on more solid footing.

The News Got Even Better This Week

The U.S. pork industry has been handed a golden opportunity to take its export market to an even higher level. An outbreak of foot-and-mouth disease has forced Taiwan's Council of Agriculture to cease the exportation of all pork, both chilled and frozen, and breeding pigs.

The ban was called temporary, but Taiwanese government officials were quoted in wire stories as saying it could remain in effect for up to two years due to international animal health regulations. Because more than 30% of Taiwan's production is sold abroad, this could have a devastating impact on the pork industry there even if the disease is brought under control relatively quickly. The first challenge will be to get the disease under control. Animals infected with foot-and-mouth are being killed, but because there's a critical shortage of vaccine the outbreak is spreading rapidly. The combination of death losses and liquidation is expected to reduce Taiwan's hog population from 14 million to 8 million.

The market impact of this news was immediate in both Taiwan and the United States. Right after the ban was announced, pork prices in Taiwan plunged more than 60%. How would you like to be selling $50 hogs one day and $30 hogs the next?

Lean hog futures in this country moved sharply higher in reaction to this news, coming off some important support areas on the daily charts. Some packing industry contracts feel having Taiwan out of the global pork market will lift North American exports to Asia to an entirely new level in just a matter of weeks. It's estimated this will improve cash prices by $3 to $6 per hundredweight this spring and summer.

Is this optimism justified? Well, there's no question the stakes are high. Taiwan exported more than 330,000 metric tons (carcass weight) of pork in 1996. If you assume an average carcass weight of 180 pounds, they exported the equivalent of 3.7 million hogs last year. In theory, a market for 3.7 million hogs has suddenly opened up which is almost 4% of current U.S. production.

The big prize is Japan. More than 90% of Taiwanese pork exports go to Japan, with the rest going to other Asian neighbors. Almost 40% of the pork the Japanese imported in 1996 came from Taiwan, and that's down from 45% as recently as two years ago. The United States' share of Japanese imports was about 23% last year. Other major suppliers of pork to the Japanese are Denmark and Canada. Because all of the pork-exporting nations already have solid business relationships with Japanese importers, all are expected to gain frozen pork market share while Taiwan is out of the ball game.

But it's in chilled pork sales where the United States has the best growth potential. That's because Denmark is mostly limited to selling frozen product to Japan. It takes too long to transport chilled product from Europe to Japan.

A recent outbreak of hog cholera in the Netherlands further complicates the world pork market. The Dutch export pork primarily to other European nations, but their swine health problems will probably increase the demand for Danish pork in Europe. That will mean less Danish pork will be available for the Asian market. Another intriguing question is how all this will impact the safeguard tariff currently in place on pork coming into Japan. Buying interest from the Japanese has been soft the past few months and it was announced about a month ago that the tariff would remain at a high level until July 1. However, there is now speculation the Japanese will reduce or even eliminate the tariff sooner because of the special circumstances created by the Taiwanese situation.

Pork Exports

U.S. Pork Trade
Taiwan Is A Major Corn Buyer

Because the ban on Taiwanese pork exports is obviously bullish news for hog prices, we lightened up on hedges this week. But what are the implications for corn?

Taiwan was the fourth largest buyer of U.S. corn last year, purchasing 233.8 million bushels. That's about 10% of total corn exports. Most of that corn was used for either pork production or Taiwan's growing poultry industry.

The current hog inventory must still be fed, so there isn't a great deal of concern about the ban having an immediate impact on corn exports. However, dramatic liquidation of breeding herds could start immediately, which will mean reduced corn needs later this year.

Pork Exports, Selected Countries

But if the U.S. pork industry is successful in filling the void in global pork supplies created by Taiwan's quarantine, more hogs will have to be raised in this country. That will eventually boost domestic feed demand.

March 21, 1997 Richard A. Brock & Associates, Inc.