U.S. Exports and International TradeBecca Nepple, VP International Marketing – National Pork Board

Dr. Dermot Hayes, Professor of Economics – Iowa State University

Strategic Plan Export Goal

By 2020, increase pork exports through access to new markets and expansion of existing markets, and achieve 9% average annual increase in value and

quantity, compared to 2014 year-end data.

Areas of Investment

• Marketing and promotion• Market research• Market intelligence• New product development

Exported Cuts

Exported Cuts

2015 Progress• Year-end exports:

– Value ↓16% from 2014– Volume ↓2%– 24% of production– $48.31/head value

• Momentum in 2016• MCOOL resolution• Plants for China export relisted• TPP negotiation results positive

Challenges

• West coast port slowdown = Need to rebuild trust• Currency• Russian closure• Steep competition• Tariff and SPS barriers

Share of Global Exports

Opportunity

• Market access and development• Relationship-building• Education and training• Creative promotion

The International Market for US Pork

Dermot HayesIowa State University

Overview• Long run prospects for exports• Why the US domestic market is so sensitive to exports• Short run prospects for exports• China

Trade agreements• Preferential trade agreements have gone viral• If a country does not keep up, other countries will use preferential

access to take market share• President Obama agreed to the FTA with South Korea because he did

not want to be disadvantaged relative to the EU in that market• Japan is negotiating trade agreements with the EU and Canada and

has one with Mexico and Australia

TPP• Japan agreed to:

• eliminate barriers to processed pork after 5 years• reduce the ad valorem duty from 4.3% to 2.2% and to eliminate this duty over

10 years• Impose a maximum duty of 50yen/kg $0.19/lb after 10 years• fix the gate price at 524 yen/kg permanently, this is a major concession

because inflation will gradually increase the delivered

• Vietnam and Malaysia agreed to duty free access after 10 years

Why is the US Pork Market so Sensitive to Exports?• US consumers behave in a well understood and predictable fashion• US pork production can be predicted well in advance• US cash and futures traders understand these forces and bid them into

prices• Exports can change rapidly due to changes in policy, disease issues and

because the US is a residual supplier when other countries have scarcity• For every $1 million in exports the value of each carcass increases by 7

cents for the six weeks surrounding the export increase, this means that the US producer gets a benefit of $880,000 per one million dollar increase in exports

• The impact of variety meat exports is 2-3 that of muscle meat

United States (Consumption/Domestic) Export StatisticsCommodity: Total Pork, U.S. Total Pork Exports 0504 Pk Specific

Year To Date: January - April

Partner CountryQuantity % Change

2014 2015 2016 2016/2015

World 776913 726104 722641 - 0.48Mexico 221312 237997 213358 - 10.35Japan 169060 149849 127807 - 14.71China 116778 52719 114483 117.16Canada 65100 63539 63195 - 0.54Hong Kong 23915 46465 62036 33.51Korea South 57423 79402 51250 - 35.45Australia 24223 18585 19912 7.14Colombia 18541 15651 11027 - 29.55Philippines 14655 10251 9803 - 4.37Dominican Republic 6357 8397 8776 4.52Honduras 5837 6563 8114 23.64Guatemala 3846 4597 5415 17.80

United States (Consumption/Domestic) Export StatisticsCommodity: Total Pork, U.S. Total Pork Exports 0504 Pk Specific

Month Of: April

Partner CountryQuantity % Change

2014 2015 2016 2016/2015

World 192939 200120 188321 - 5.90Mexico 53430 58490 53412 - 8.68China 22214 18069 34976 93.57Japan 48526 45927 32826 - 28.53Hong Kong 5037 13362 17312 29.56Canada 17382 14634 15685 7.18Korea South 17122 22025 12097 - 45.08Australia 4911 6721 4948 - 26.38Colombia 4398 3562 2758 - 22.56Dominican Republic 1867 2617 2336 - 10.75Honduras 1795 1911 2050 7.26Philippines 3851 2992 1796 - 39.98Guatemala 1117 1180 1263 7.02

H-N-0303/25/16

Data Source: Lee Schulz USDA-NASS

Livestock Marketing Information Center

H-N-0203/25/16

Data Source: Lee Schulz USDA-NASS

Livestock Marketing Information Center

Year Comm’l % Chg. Avg Carcass % Chg. Comm’l Pork % Chg. Quarter Slaughter Year Ago Weight Year Ago Production Year Ago

2014 (1,000 hd) (lbs) (mil. Lbs)I 27,131 -2.6 213 2.7 5,784 0.2 II 25,575 -4.4 215 4.4 5,504 -0.2 III 25,558 -7.6 212 4.3 5,424 -3.5 IV 28,612 -4.0 215 1.7 6,131 -2.3

Year 106,876 -4.6 214 3.3 22,843 -1.5 2015

I 28,724 5.9 215 0.8 6,162 6.5 II 27,850 8.9 213 -1.1 5,925 7.6 III 28,477 11.4 210 -1.3 5,958 9.8 IV 30,375 6.2 213 -0.9 6,457 5.3

Year 115,425 8.0 213 -0.6 24,501 7.3 2016

I 29,259 1.9 213 -0.9 6,230 1.1 II 27,913 0.2 213 -0.0 5,943 0.3 III 28,711 0.8 210 -0.1 6,016 1.0 IV 30,194 -0.6 214 0.4 6,448 -0.1

Year 116,077 0.6 212 -0.2 24,637 0.6 2017

I 29,332 0.2 214 0.3 6,268 0.6 II 28,332 1.5 213 0.1 6,037 1.6 III 28,728 0.1 210 0.1 6,027 0.2 IV 30,774 1.9 214 0.0 6,575 2.0

Year 117,166 0.9 213 0.1 24,907 1.1

LMIC Pork Production and Price Quarterly Forecasts (6/6/16)Sources: Lee Schulz USDA/NASS; USDA/AMS Livestock Market News; Projections and Forecasts by LMIC

2013 = +$6.21 [-$25.60 to +$24.57]2014 = +$61.85 [+$13.15 to +$107.25]2015 = +$7.93 [-$18.40 to +$26.25]2016f = +$12.76 [-$12.83 to +$43.77]

New Pork Packing Plants

Daily Slaughter Capacity

Pleasant Hope, MO 3,000Windom, MN 5,000Sioux City, IA 10,000Coldwater, MI 10,000Proposed (In Iowa) 10,000

Total 38,000

Source: Various media reports. Lee Schulz Calculations

Additions to Current Slaughter Capacity+ 38,000 per day

+ 205,200 per week+ 10.7 million per year

= 450,000–500,000 sows

Current Slaughter Capacity UtilizationAvg 2009-13: 87%

2014: 83%2015: 89%

2016 YTD: 90%

76% - 83%

(at current productivity and import levels)To get back to current slaughter

capacity utilization

China• In Fall of 2015, the US had a surplus of pork and had to discount it

heavily to move it into international and domestic market• China needed the pork but most US plants did not have access• Europe took advantage of this opportunity • About 60-70% of hogs now come from plants that have access to

China, this does not mean they are exporting yet• The incentives are in place to move the hams and shoulder meat to

China

06/06/16Data Source: USDA-AMS

Livestock Marketing Information Center

2016 YTD:-$0.32/cwt (-8.5%) vs 2015

-$1.82/cwt (-34.8%) vs Avg 2010-14

Commodity: Pork & Pork Products (China),

Year Ending: April

Partner Country UnitQuantity % Share % Change

2014 2015 2016 2014 2015 2016 2016/2015

World T 1473856 1477036 1953024 100.00 100.00 100.00 32.23

Germany T 210494 290729 435602 14.28 19.68 22.30 49.83

United States T 396764 366140 322179 26.92 24.79 16.50 - 12.01

Spain T 155502 189153 275471 10.55 12.81 14.10 45.63

Denmark T 230134 228562 273051 15.61 15.47 13.98 19.46

Canada T 156500 104334 162119 10.62 7.06 8.30 55.38

Netherlands T 27533 70029 137378 1.87 4.74 7.03 96.17

France T 91151 68623 109256 6.18 4.65 5.59 59.21

United Kingdom T 38691 45513 61414 2.63 3.08 3.14 34.94

Chile T 44651 47270 57730 3.03 3.20 2.96 22.13

Ireland T 31865 38403 52999 2.16 2.60 2.71 38.01

Hungary T 0 14913 30904 0.00 1.01 1.58 107.23

Belgium T 7984 11829 21397 0.54 0.80 1.10 80.89

How long will the China opportunity last?• China killed 5-12 million low productivity sows in the last three years• This was due in part to a disastrous corn price support policy• Other factors included a dramatic reduction in backyard production • The flood of sow meat disguised the problem for a while• Now that they are rebuilding, the use of gilts for breeding will make

the scarcity even worse• If rebuilding occurs at a normal pace then the opportunity will be over

in two years

Pigs in the River Problem• Nationwide campaign to close pig farms in populated areas, this

includes Beijing, Tianjin, Hebei, Yangzi River Delta, Pearl River Delta• Zhejiang province has closed 69,579 pig farms that had produced 4.9

pigs annually• Ban on livestock production near markets and highways to cut down

on disease pressure• New regulations on waste emissions for “scale” size farms, slurry must

be treated and applied to fields

Predicted new urbanization

Bottom Line• The long run opportunities for US pork are enormous, especially if we

continue to implement trade agreements• The US will have ample supplies of pork this fall and should find a ready

market in China, this should last for two years• The Chinese pork industry has damaged its reputation among consumers

and policymakers, this could be a huge opportunity for US pork exports• Over-reliance on China brings enormous risks (South China Sea, Steel,

Chicken, DDGS, Self Sufficiency, Trump)• Chinese and US traders may need to find an alternative to cash market

purchases