U.S. pork producers and Chinese pork consumers operated in two different economic worlds until about a year ago. The U.S. is the world’s second largest producer of pork and in 2006 exported 14 percent of its production, but China was a minor market. China is the world’s largest producer and consumer of pork, but traditionally has had limited involvement in international pork trade. Large pork supplies in the U.S. and pork production problems in China have created an opportunity for U.S. producers to avoid extremely low market prices and Chinese consumers to maintain their established eating patterns.

In January of this year USDA’s World Agricultural Outlook Board (WAOB) projected U.S. pork production for 2008 at 22.8 billion pounds, up 4.1 percent from the 2007 estimate of 21.9 billion pounds and up 8.1 percent from 21.1 billion pounds in 2006. Market prices for live hogs were projected to average $41-44 per hundred pounds in 2008 after averaging $47 per hundred pounds in 2006 and 2007. With higher feed costs, the lower market prices were expected to result in substantial losses for hog producers.

The June estimates from the WAOB show production for the year at 23.4 billion pounds, exceeding the January projection for 2008 by 2.6 percent and 2007 production by 6.8 percent. Hog prices averaged $39.64 per hundred pounds for the first quarter, near the low end of the $39-41 range expected by the WAOB in January. Prices for the second quarter are now projected to average $51-52 per hundred pounds, compared to the $43-47 per hundred pounds range projected in January. For the year hog prices are expected to average near the $47 per hundred pounds average for 2006 and 2007.

Many factors influence market prices for agricultural products, but the most observable change in the supply and use balance for U.S. pork is exports that through the first four months of 2008 are 52 percent higher than the first four months of 2007. China/Hong Kong imports are up over 311 percent to 319.2 million pounds and almost tied with the usual number one market Japan at 319.5 million pounds. Exports to other major markets are also sharply higher with Mexico up 10 percent, Russia up 142 percent, Canada up 24 percent and South Korea up 12 percent. Exports to Taiwan and Australia are down 18 and 7 percent respectively.

The 311 percent increase in exports to China/Hong Kong is on top of a doubling of exports in calendar year 2007. The U.S. accounted for about half of China’s total pork imports. These rapid increases in exports to China were not part of a grand plan by the U.S. to export more pork to China or on the part of China to import more from the U.S. Prior to 2007 exports to China/Hong Kong had increased over the previous five years from about 100 million pounds per year to 200 million pounds per year. The U.S. Agriculture Attaché in China has estimated that China’s pork production declined by 9 percent in 2007 due to swine disease problems and increased production costs. A severe snow storm in late January 2008 and the May 12 earthquake in Sichuan Province have further reduce production in the short term. In April pork prices in China had increased by 68 percent compared to April 2007. Pork accounts for almost two thirds of per capita meat consumption in China, and higher pork prices have been most felt by poor and middle-class families who spend more of their income on food.

While the 52 percent increase in U.S. exports in the first four months of 2008 is large, U.S. pork exports grew almost two and a half times from 1998 through 2007 from 1.2 billion pounds to 2.9 billion pounds. The current WAOB projection for exports for the entire 2008 year is 4.3 billion pounds, over 18 percent of U.S. pork production. That is a huge benefit to an industry with production for the first five months of 2008 that is 11 percent above 2007 and facing record high feed costs.

Shortfalls in production of crops and livestock over the past year have again highlighted the importance of free trade in agricultural commodities and food products. Uncertain weather and disease problems are facts of life in production agriculture. Consumers want to maintain a consistent diet without sharp increases in the cost of food. Free trade puts consumers in any country in touch with food suppliers around the world.

Agricultural producers want and need the flexibility as consumers. When feed production in the EU fell short last year, livestock producers relied on increased imports of corn to maintain herds. Australia’s wheat crop may be almost twice the size of last year’s crop and much more will be available for exporting to other countries. The U.S. will likely have less corn available for export, but more soybeans and wheat available for export.

Without trade, the amount of people who can live in a particular location or country is restricted by the availability of food in a short crop year plus whatever can be stockpiled in good crop years. Storing crops is costly and maintaining quality for several years can be difficult. Livestock need to be slaughtered during short crops to reduce the amount of grain needed for feed. If crop production is substantially below the needed minimal level, widespread famine occurs.

Because of open trade and our modern transportation system, Chinese consumers do not need to radically change their diets as Chinese pork production is rebuilt towards its normal level. China is already importing more breeding animals to replace those lost to disease, weather and earthquake. U.S. hog producers will not suffer as many financial losses as they adjust hog supplies to market demands. That is a win-win for economic efficiency.