The European production challenge

The USDA Quarterly Hogs and Pigs report will be released at 2 pm this afternoon. Everyone is looking for a continued decrease in the US breeding herd and smaller numbers in all weight categories in the kept for market inventory. Assuming these expectations are met, Dr Ron Plain at the University of Missouri is predicting 2nd quarter hog prices in 2010 to be in the $67-70 range for carcass prices. While not wildly profitable, this price will stop the severe erosion of equity that has occurred the past 2 years for many producers.

 

The past few days I’ve been looking at the European pork industry in preparation for a series of talks in the next few months, and it is interesting to see how they compare to the US industry for such things as cost of production and production challenges.

 

According to the USDA Foreign Ag Service, 43% of the world meat consumption is pork, with beef at 27%, boiler at 23%, lamb and goat at 5% and turkey at 2%. This suggests that the long term demand for pork is very good and the prospects of continued international trade being important to our profitability will continue.

 

The Eu-27 countries (formerly called the European Common Union) lead the world in pork consumption. In 2007, they averaged 94.2 lb (carcass wt) of pork per capita. This compares to 65.8 lb per capita consumption in Canada and 65.6 lb US consumption.

 

The largest producer of pork in Europe is Germany. In 2008, they slaughtered 54.8 million pigs, just under 50% of what was slaughtered in the US. Their industry is becoming very much like the industry of the Midwest – fewer sows and more imports of weaned pigs.

 

In 2009, Denmark will export approximately 7.2 million weaned pigs, primarily to Germany. This is a 38% increase over 2008 and represents a major change in the Danish industry. As a result of the increased exports of weaned pigs, the Danes have closed one slaughter plant and will export over 1 million pigs for slaughter in other countries (primarily Germany).

 

To put the Danish export number in perspective, 2008 was the peak year for importation of Canadian feeder pigs when US producers imported 6.77 million pigs. It appears that the final importation number for 2009 will be in the range of 5.2 million, a considerable reduction.

 

The biggest challenge EU-27 pork producers face are the various mandates that they must adhere to in their production processes. The Dutch face the biggest challenges due to the limits on land availability for manure application. One recent economic study suggested that the production right to grow pigs (think of it as a quota) is currently priced at $290 per fattening space and $790 per sow place. This means if a producer wants to grow, they must buy a production right from another producer who will quit or reduce production by a given amount. This production right expense is in addition to all of the other mandatory expenses including such expenses as no antimicrobials in diets, control of ammonia discharge into the atmosphere, etc.

The total expense for compulsory measures in 2007 was estimated to add $13 per cwt carcass weight to the cost of production for Dutch producers with this expense growning to $17 per cwt carcass by 2013. In 2013 the compulsory measures expense will be an estimated $8 per cwt carcass in Denmark and $7 per cwt carcass in Germany.

 

Next to China, the EU-27 member countries are second largest pork producers in the world. However, when you consider the challenges they face in increased cost of production from such items as mandatory production practices, one can be safe is stating that their producers will not be a position to compete against US and Canadian producers in the world market.

 

While many argue that the whims of the export buyer are part of the reason we had such high financial losses the past 2 years, one can’t argue with the fact that the world is coming to our door to buy our product. Our future is clearly tied to the world’s preference for pork as the meat of choice. It’s nice to see that those that have survived the past 2 years may be in a position to once again enjoy the financial rewards of this position.

 

 

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