U.S. Exports & International Trade - PORK Academy - Dr. Dermot Hayes, Iowa State University; Becca Nepple, National Pork Board, from the 2017 World Pork Expo, June 7 - 9, 2017, Des Moines, IA, USA. More presentations at http://www.swinecast.com/2017-world-pork-expo

1. Overview
• Forces driving world pork markets
• The US
• China
• Europe
• US Competitive position
• Long term export outlook
• Border adjustments
• Trade wars and FTAs

3. July and Dec Lean Hog Quotes

5. Source: USDA/AMS

6. Year Comm’l % Chg. Comm’l % Chg. Per Cap % Chg.
Quarter Slaughter Year Ago Production Year Ago Consumption Year Ago
2015 (1,000 hd) (lbs) (mil. Lbs)
I 28,724 5.9 6,162 6.5 12.2 9.0
II 27,850 8.9 5,925 7.6 11.8 9.4
III 28,477 11.4 5,958 9.8 12.1 10.3
IV 30,375 6.2 6,457 5.3 13.5 5.7
Year 115,425 8.0 24,501 7.3 49.7 8.5
2016
I 29,262 1.9 6,230 1.1 12.6 3.1
II 28,116 1.0 5,963 0.6 11.8 0.1
III 29,323 3.0 6,100 2.4 12.1 -0.1
IV 31,539 3.8 6,648 3.0 13.5 -0.2
Year 118,240 2.4 24,941 1.8 50.0 0.7
2017
I 30,176 3.1 6,409 2.9 12.3 -2.2
II 29,224 3.9 6,163 3.4 11.8 -0.5
III 29,912 2.0 6,239 2.3 12.1 0.1
IV 32,383 2.7 6,862 3.2 13.6 0.5
Year 121,695 2.9 25,673 2.9 49.8 -0.5
2018
I 30,674 1.7 6,538 2.0 12.3 0.3
II 29,704 1.6 6,276 1.8 11.9 1.3
III 30,295 1.3 6,330 1.5 12.2 0.1
IV 33,326 2.9 7,070 3.0 13.7 0.9
Year 123,999 1.9 26,214 2.1 50.1 0.7
LMIC Pork Prod. and Cons. Quarterly Forecasts (6/2/17)
Sources: USDA/NASS; USDA/AMS Livestock Market News; Projections and Forecasts by LMIC

9. 0
500
1000
1500
2000
2500
3000
3500
0
1000
2000
3000
4000
5000
6000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 7. Chinese Imports of Pork Products
($ value on left axis)
Source GTIS
Value ($ Million) Quantity (000 Tons)

12. 0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Spanish Exports by Country
China France Italy

13. 0
10000
20000
30000
40000
50000
60000
70000
German Pork Exports by Country
China Italy Netherlands Poland United Kingdom

14. Source: InterPig

15. 0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Index of Sow Numbers
Source USDA
Brazil Canada China European Union Mexico United States

16. Data Source: USDA/ERS
USDA Long‐term Projections, February 2017
http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1192
Pork exporters: thousand 2016 to 2026 Growth
metric tons, carcass
weight
2016 2017 … 2021 … 2026 % Total
Brazil 900 940 … 925 … 975 8% 75
Canada 1,350 1,300 … 1,365 … 1,426 6% 76
Mexico 140 150 … 168 … 188 34% 48
European Union 3 3,300 3,300 … 3,290 … 3,543 7% 243
China 180 180 188 198 10% 18
United States 2,349 2,468 … 2,650 … 2,929 25% 580
Major Importers 8,219 8,338 … 8,587 … 9,259 13% 1040
3/ Excludes intra-EU trade.

19. Implementation of strict environmental
regulations will further constrain China’s
sow herd recovery in 2017. Post is
decreasing its 2017 starting sow estimate
by 12 percent to 38 million head. This
reduction will impact the 2017 pig crop,
decreasing domestic pork production to
51 million metric tons (MMT). Even at
their current record levels, increased
imports will only partially offset this
production decrease, causing domestic
pork prices to continue to rise and
leading to a 2.6 MMT drop in overall pork
consumption to 52 MMT
0
10,000
20,000
30,000
40,000
50,000
60,000
200020012002200320042005200620072008200920102011201220132014201520162017
Chinese Sow Inventory

20. A new sow barn!
Crop Land Reform in China
• China has begun to take seriously
its red line on the minimum
amount of crop land
• If you wish to use one acre for
development you have to “create”
a crop acre somewhere else
• It is allowing permits to be traded
• This has increased the opportunity
cost of land in existing hog
buildings and made it difficult to
build new buildings

21. Areas where pork plants have been forcibly
closed

22. • Citizens in all countries are extremely concerned about food security
and for many, this means self sufficiency
• These concerns are often fanned by the agriculture ministry
• Economists in the trade or finance ministry often push back and point
out the benefits of trade
• Trade embargoes and talk of trade wars can tip this balance, the US is
currently damaging its food export opportunities
• Countries such as Mexico and China will look for other sources of
food even if slightly more expensive, they will also become more
protectionistic
Protectionism in food markets

23. Border Adjustments
• The US is one of the very few countries in the world that does not have a value added tax
• VAT is a tax on consumption and it is not charged on exports, in fact, exporters get the
accumulated VAT beck when they export
• When the US exports pork to China the importer pays VAT
• When Denmark exports pork to China the importer pays VAT, but the exporter gets a VAT
refund
• In the House plan, businesses in the United States would no longer be able to deduct the
cost of purchases from abroad, but would no longer be taxed on the revenue attributable
to exports
• Effectively imports would be subject to a 20% duty while exports would be subsidized
• This would turn the US into an export powerhouse, profitable companies would buy up
companies with large export sales

24. Bottom Line
• China is driving world pork markets and will do so for at least 18 months
• Chinese pork farmers damaged their own reputation and eroded their
political support, this has lead to the forced closure of many facilities
• Land use management in China is severely impacting production costs
• Unless new subsidies are introduced in China, imports should continue to
grow, new subsidies will happen if China becomes concerned about a trade
war
• The US is backfilling EU and Canadian exports
• If the China market disappoints, the world will have too much pork
• Border tax adjustments are supported by many economists but may not be
legal