Racto Calcs

March 20, 2013 — 

With new Russian and Chinese requirements that U.S. pork exports be certified to have been produced without the feed-efficiency compound ractopamine, U.S. farmers and processors have some big decisions to make. Taiwan has also rejected pork from pigs fed ractopamine, but allows beef from cattle fed ractopamine.

Over the past 2 years, the U.S. exported 8.4 pounds of pork and variety meats to China from each barrow/gilt slaughtered in the U.S. For Russia only 2.3 pounds per pig is exported and Taiwan only buys 1 pound per pig (11 combined pounds). Ractopamine returns an average estimated $6 per head in increased meat value to hogs utilizing the compound. The $6/head in lost meat value for pigs not fed ractopamine means that the combined 11 pounds per hog exported to those three markets would have to increase US$0.53/lb to offset the lost benefit.

The average export price of U.S. pork and variety meats to China over the past two years was US$0.82/lb, so a US$0.53/lb price hike to cover the racto-free premium would be the equivalent of a 61% price hike for China. The exported price to Russia over the past two years averaged US$1.34/lb, so adding US$0.53/lb increases the export price to Russia by 39%. We know that due to market leverage and structure, such price hikes cannot be obtained with racto-free pork in China and Russia. Said another way: Export markets will not compensate for the cost of foregoing ractopamine.

But what about carcass shipments? That $6/head racto-benefit, spread over an entire carcass requires only US$0.028/lb to recoup. And while we have seen large carcass orders by China, these orders have historically been very big, but were very short lived.

In all three situations (Russia, Taiwan, and China) the ractopamine issue has a strong political element. The new regulations were not driven by consumers. Unless consumers here at home are willing to pay a premium, the future of ractopamine-free pork remains cloudy.

Source: Global AgriTrends