Required Report - public distribution

**Date:** 09/01/2005

**GAIN Report Number:** MX5077

MX5077

**Mexico**

Livestock and Products

**Livestock Annual**

2005

**Approved by:**

![](media/image1.wmf)Suzanne E. Heinen

#### U.S. Embassy Mexico City

**Prepared by:**

Sal Trejo

**Report Highlights:**

Mexico continued to relax its import restrictions on U.S. bovine
products during 2005 and beef imports are expected to climb to 350,000
tons in 2006, up from 2005, but still below pre-BSE levels. The
Secretariat of Agriculture also approved the importation of bulls for
breeding under certain conditions. Mexico's cattle exports are expected
to remain strong during 2006 as exportable supplies of calves are good
and grazing conditions have benefited from favorable weather conditions.
Production and imports of pork are forecast to increase in 2006, as are
imports of live hogs.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Mexico \[MX1\]

\[MX\]

Table of Contents

[SECTION I. SITUATION AND OUTLOOK 3](#section-i.-situation-and-outlook)

[Executive Summary 3](#executive-summary)

[SECTION II. STATISTICAL TABLES 4](#refheading___toc94599519)

[PS&D, Animal Numbers, Cattle (1000 Head)
4](#psd-animal-numbers-cattle-1000-head)

[PS&D, Meat, Beef and Veal (1000 Head) (K Metric Tons)
4](#psd-meat-beef-and-veal-1000-head-k-metric-tons)

[PS&D Animal Numbers, Swine, (1000 Head)
5](#psd-animal-numbers-swine-1000-head)

P[S&D, Meat, Swine (1000 Head) (K metric Tons)
5](#psd-meat-swine-1000-head-k-metric-tons)

[Trade Matrix 6](#trade-matrix)

Cattle Exports by State
2004\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....7

[Grass Fed Live Steer Average Wholesale Prices in Mexico City
7](#grass-fed-live-steer-average-wholesale-prices-in-mexico-city)

[Beef Carcass Average Wholesale Prices in Mexico City
7](#beef-carcass-average-wholesale-prices-in-mexico-city)

[Finished Live Hog Wholesale Prices in Mexico City
8](#finished-live-hog-wholesale-prices-in-mexico-city)

[Pork Carcass Average Wholesale Prices in Mexico City
8](#pork-carcass-average-wholesale-prices-in-mexico-city)

Cattle and Hog
Sluaghter\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....9

Related FAS/Mexico
Reports\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....10

[SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING
10](#__RefHeading___Toc94599532)

Production\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....10

[Cattle/Beef 10](#cattlebeef)

[Swine/Pork 12](#swinepork)

[Consumption 12](#consumption)

[Cattle/Beef 12](#cattlebeef-1)

[Swine/Pork 13](#swinepork-1)

[Trade 13](#trade)

[Cattle/Beef 13](#cattlebeef-2)

[Swine/Pork 14](#swinepork-2)

[Policy 15](#policy)

[Cattle/Beef 15](#cattlebeef-3)

[Swine/Pork 15](#swinepork-3)

[Marketing 15](#marketing)

[Cattle/Beef 15](#cattlebeef-4)

[Swine/Pork 16](#swinepork-4)

# SECTION I. SITUATION AND OUTLOOK

## Executive Summary

Mexico's 2006 exports of live cattle are forecast at 1.3 million head,
marginally lower than the 2005 estimate of 1.45 million head. Despite
heavy exports over the past few years, herd size and replacement
supplies appear to be strong in exporting states. 2005 weather
conditions have been favorable and grazing conditions and forage
supplies are expected to be good heading into 2006. There is some
concern in Mexico that the resumption of U.S. imports of Canadian
slaughter cattle could hurt premiums for Mexican cattle. While pork
slaughter is forecast unchanged for 2006 at 14.5 million head, meat
production is expected to increase as the share of hogs slaughtered in
federally inspected plants increases and the industry continues to adopt
modern animal husbandry practices.

Mexico continues to relax its restrictions on beef imports following the
detection of Bovine Spongiform Encephalopathy (BSE) in the United States
in 2003 and imports of beef are forecast to reach 350,000 MT during
2006, up 30,000 MT from 2005, but still below pre-BSE levels. At the
writing of this report, it is unclear when the Government of Mexico
might further open its market to U.S. bovine products following the
implementation of USDA's minimal risk rule in July. Pork imports are
forecast to increase slightly to 500,000 tons in 2006 as demand from the
food processing and retail sectors remains strong.

[]{#refheading___toc94599519 .anchor}**SECTION II. STATISTICAL TABLES**

##  PS&D, Animal Numbers, Cattle (1000 Head)

  -------------------- --------- -------- --------- -------- --------- --------
  **PSD Table**                                                        

  Country:             Mexico                                          

  Commodity:           CATTLE                                          

                       2004               2005               2006      

                       Old       New      Old       New      Old       New

  Calendar Year Begin  01/2004            01/2005            01/2006   

  Total Cattle Beg.    19524     28437    17709     27572              26897
  Stocks                                                               

  Dairy Cows Beg.      2200      2200     2200      2200               2200
  Stocks                                                               

  Beef Cows Beg.       11350     11350    11500     11500              11700
  Stocks                                                               

  Production (Calf     8942      7300     9350      7500               7800
  Crop)                                                                

  Intra EC Imports     0         0        0         0                  0

  Other Imports        68        68       75        75                 85

  TOTAL Imports        68        68       75        75                 85

  TOTAL SUPPLY         28534     35805    27134     35147              34782

  Intra EC Exports     0         0        0         0                  0

  Other Exports        1375      1375     1450      1450               1300

  TOTAL Exports        1375      1375     1450      1450               1300

  Cow Slaughter        1600      1600     1500      1700               1700

  Calf Slaughter       1545      1545     1500      1500               1500

  Other Slaughter      5930      3105     5500      3100               3300

  Total Slaughter      9075      6250     8500      6300               6500

  Loss                 375       608      350       500                500

  Ending Inventories   17709     27572    16834     26897              26482

  TOTAL DISTRIBUTION   28534     35805    27134     35147              34782
  -------------------- --------- -------- --------- -------- --------- --------

##  PS&D, Meat, Beef and Veal (1000 Head) (K Metric Tons)

  --------------------- --------- -------- ------------ -------- --------- ------ -------
  **PSD Table**                                                                   

  Country:              Mexico             Conversion                             
                                           factor for                             
                                           CWE 1.37                               

  Commodity:            Cattle,                                                   
                        MEAT,                                                     
                        BEEF and                                                  
                        VEAL                                                      

                        2004               2005                  2006             

                        Old       New      Old          New      Old              New

  Calendar Year Begin   01/2004            01/2005               01/2006          

  Slaughter (Reference) 9075      6250     8500         6300               6500   

  Beginning Stocks      0         0        0            0                  0      

  Production            2150      2099     2070         2150               2175   

  Intra EC Imports      0         0        0            0                  0      

  Other Imports         287       287      320          320                350    

  TOTAL Imports         287       287      320          320                350    

  TOTAL SUPPLY          2437      2386     2390         2470               2525   

  Intra EC Exports      0         0        0            0                  0      

  Other Exports         18        7        25           25                 30     

  TOTAL Exports         18        7        25           25                 30     

  Human Dom.            2399      2359     2345         2425               2475   
  Consumption                                                                     

  Other Use, Losses     20        20       20           20                 20     

  TOTAL Dom.            2417      2366     2370         2450               2505   
  Consumption                                                                     

  Ending Stocks         0         0        0            0                  0      

  TOTAL DISTRIBUTION    2437      2386     2390         2470               2525   
  --------------------- --------- -------- ------------ -------- --------- ------ -------

##  PS&D Animal Numbers, Swine, (1000 Head)

  ------------------- --------- -------- --------- -------- --------- --------
  **PSD Table**                                                       

  Country:            Mexico                                          

  Commodity:          Swine                                           

                      2004               2005               2006      

                      Old       New      Old       New      Old       New

  Calendar Year Begin 01/2004            01/2005            01/2006   

  TOTAL Beginning     10668     10668    10303     10303              10038
  Stocks                                                              

  Sow Beginning       930       930      940       940                950
  Stocks                                                              

  Production (Pig     15350     15350    15450     15450              15500
  Crop)                                                               

  Intra EC Imports    0         0        0         0                  0

  Other Imports       190       190      200       200                225

  TOTAL Imports       190       190      200       200                225

  TOTAL SUPPLY        26208     26208    25953     25953              25763

  Intra EC Exports    0         0        0         0                  0

  Other Exports       0         0        0         0                  0

  TOTAL Exports       0         0        0         0                  0

  Sow Slaughter       15        15       15        15                 15

  OTHER SLAUGHTER     14500     14500    14500     14500              14500

  Total Slaughter     14515     14515    14515     14515              14515

  Loss                1390      1390     1400      1400               1000

  Ending Inventories  10303     10303    10038     10038              10248

  TOTAL DISTRIBUTION  26208     26208    25953     25953              25763
  ------------------- --------- -------- --------- -------- --------- --------

##  PS&D, Meat, Swine (1000 Head) (K metric Tons)

  -------------------- --------- -------- ------------ -------- --------- --------
  **PSD Table**                                                           

  Country:             Mexico             Conversion                      
                                          factor for                      
                                          CWE 1.37                        

  Commodity:           Swine,                                             
                       MEAT                                               

                       2004               2005                  2006      

                       Old       New      Old          New      Old       New

  Calendar Year Begin  01/2004            01/2005               01/2006   

  Slaughter            14515     14515    14515        14515              14515
  (Reference)                                                             

  Beginning Stocks     0         0        0            0                  0

  Production           1150      1150     1175         1175               1200

  Intra EC Imports     0         0        0            0                  0

  Other Imports        458       458      495          495                500

  TOTAL Imports        458       458      495          495                500

  TOTAL SUPPLY         1608      1608     1670         1670               1700

  Intra EC Exports     0         0        0            0                  0

  Other Exports        52        52       55           55                 65

  TOTAL Exports        52        52       55           55                 65

  Human Dom.           1556      1556     1615         1615               1635
  Consumption                                                             

  Other Use, Losses    0         0        0            0                  0

  TOTAL Dom.           1515      1515     1615         1615               1635
  Consumption                                                             

  Ending Stocks        0         0        0            0                  0

  TOTAL DISTRIBUTION   1608      1608     1670         1670               1700
  -------------------- --------- -------- ------------ -------- --------- --------

## Trade Matrix 

## 

  ------------ ----------- ----------- ------------ ----------- -----------
  Animal                               **Units:                 
  Numbers,                             Head**                   
  CATTLE                                                        

  Exports to:  2004        2005\*      Imports      2004        2005\*
                                       from:                    

  U.S.         1,373,314   610,010     U.S.         3,665       0

  Aruba        1,199                   Other                    

                                       Australia    29,573      2,698

                                       Nicaragua    28,444      20,165

                                       New Zealand  6,094       22,718

                                       Canada       0           0

  Total of     1,199       0           Total of     64,111      45,581
  other                                other                    

  Other not    224         0           Other not    0           0
  listed                               listed                   

  Grand Total  1,374,737   610,010     Grand Total  67,776      45,654
  ------------ ----------- ----------- ------------ ----------- -----------

  ------------ ----------- ----------- ------------ ----------- -----------
  Meat, Beef &                         **Units:                 
  Veal                                 Metric                   
                                       Tons**                   

  Exports to:  2004        2005\*      Imports      2004        2005\*
                                       from:                    

  U.S.         5,408       3,028       U.S.         117,520     58,362

  Other                                Other                    

  So. Korea    0           19          New Zealand  6,452       2,713

  Japan        16          504         Canada       75,123      21,084

  Chile        0           0           Australia    3,016       978

                                       Chile        3,763       5,817

                                       Nicaragua    1,239       488

                                       Panama       1,007       329

                                       Costa Rica   1,389       1,049

  Total of     16          523         Total of     91,989      32,458
  other                                other                    

  Other not    0           0           Other not    215         440
  listed                               listed                   

  Grand Total  5,424       3,551       Grand Total  209,725     91,260
  ------------ ----------- ----------- ------------ ----------- -----------

  ------------ ----------- ----------- ------------ ----------- -----------
  Animal                               **Units:                 
  Numbers,                             Head**                   
  SWINE                                                         

  Exports to:  2004        2005\*      Imports      2004        2005\*
                                       from:                    

  U.S.         1           0           U.S.         180,137     60,141

  Other                                Other                    

                                       Canada       9,030       10,873

  Total of     0           0           Total of     9,030       10,873
  other                                other                    

  Other not    0           0           Other not    700         0
  listed                               listed                   

  Grand Total  1           0           Grand Total  189,867     71,014
  ------------ ----------- ----------- ------------ ----------- -----------

  ------------ ----------- ----------- ------------ ----------- -----------
  Meat, Swine                          **Units:                 
                                       Metric                   
                                       Tons**                   

  Exports to:  2004        2005\*      Imports      2004        2005\*
                                       from:                    

  U.S.         35,318      4,342       U.S.         283,940     101,504

  Other                                Other                    

  Japan        1,213       12,594      Canada       42,567      10,222

  Canada       566         66          Chile        7,462       2,700

  Taiwan       92          0                                    

  Total of     1,871       12,660      Total of     50,029      12,922
  other                                other                    

  Other not    78          1,207       Other not    249         36
  listed                               listed                   

  Grand Total  37,267      18,144      Grand Total  334,218     114,462
  ------------ ----------- ----------- ------------ ----------- -----------

Source: Global Trade Information Services, Inc. "World Trade Atlas"
Mexico Edition

Figures for meat are in product weight equivalent (PWE)

\* As of May 31, 2005

**Cattle Exports by State 2004**

(Head)

  ------------------------------------- ---------------------------------
  **State**                             **Cattle**

  Chihuahua                             391,590

  Sonora                                265,885

  Tamaulipas                            231,595

  Durango                               180,863

  Veracruz                              102,200

  Coahuila                              76,318

  Others                                64,953

  Nuevo Leon                            47,330

  Aguascalientes                        14,003

  Total                                 1,374,737
  ------------------------------------- ---------------------------------

##  SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

## 

## Grass Fed Live Steer Average Wholesale Prices in Mexico City

(US\$/Lb.)

+--------------------+------------+------------+---------------------+
| **Month**          | **2004**   | **2005**   | **% Change**        |
+--------------------+------------+------------+---------------------+
| January            | 0.739      | 0.867      | 17.32               |
|                    |            |            |                     |
| February           | 0.702      | 0.865      | 23.21               |
|                    |            |            |                     |
| March              | 0.735      | 0.856      | 16.46               |
|                    |            |            |                     |
| April              | 0.721      | 0.852      | 18.17               |
|                    |            |            |                     |
| May                | 0.709      | 0.848      | 19.61               |
|                    |            |            |                     |
| June               | 0.734      | 0.846      | 15.25               |
|                    |            |            |                     |
| July               | 0.744      | 0.826      | 11.02               |
|                    |            |            |                     |
| August             | 0.734      | N/A        | N/A                 |
|                    |            |            |                     |
| September          | 0.803      | N/A        | N/A                 |
|                    |            |            |                     |
| October            | 0.857      | N/A        | N/A                 |
|                    |            |            |                     |
| November           | 0.856      | N/A        | N/A                 |
|                    |            |            |                     |
| December           | 0.868      | N/A        | N/A                 |
+--------------------+------------+------------+---------------------+

Source: National Market Information Service (SNIM)

Note: 1/ N/A not available

## Beef Carcass Average Wholesale Prices in Mexico City

(US\$/Lb.)

+--------------------+------------+------------+---------------------+
| **Month**          | **2004**   | **2005**   | **% Change**        |
+--------------------+------------+------------+---------------------+
| January            | 1.11       | 1.26       | 13.51               |
|                    |            |            |                     |
| February           | 1.12       | 1.28       | 14.28               |
|                    |            |            |                     |
| March              | 1.11       | 1.27       | 14.41               |
|                    |            |            |                     |
| April              | 1.09       | 1.27       | 16.51               |
|                    |            |            |                     |
| May                | 1.06       | 1.28       | 20.75               |
|                    |            |            |                     |
| June               | 1.08       | 1.28       | 18.52               |
|                    |            |            |                     |
| July               | 1.09       | 1.27       | 16.51               |
|                    |            |            |                     |
| August             | 1.15       | N/A        | N/A                 |
|                    |            |            |                     |
| September          | 1.23       | N/A        | N/A                 |
|                    |            |            |                     |
| October            | 1.26       | N/A        | N/A                 |
|                    |            |            |                     |
| November           | 1.26       | N/A        | N/A                 |
|                    |            |            |                     |
| December           | 1.28       | N/A        | N/A                 |
+--------------------+------------+------------+---------------------+

Source: National Market Information S N/A ervice (SNIM)

Note: 1/ N/A not available

## Finished Live Hog Wholesale Prices in Mexico City

(US\$/Lb.)

+--------------------+------------+------------+---------------------+
| **Month**          | **2004**   | **2005**   | **% Change**        |
+--------------------+------------+------------+---------------------+
| January            | 0.598      | 0.712      | 19.06               |
|                    |            |            |                     |
| February           | 0.600      | 0.710      | 18.33               |
|                    |            |            |                     |
| March              | 0.607      | 0.691      | 13.83               |
|                    |            |            |                     |
| April              | 0.596      | 0.636      | 6.71                |
|                    |            |            |                     |
| May                | 0.655      | 0.603      | (8.62)              |
|                    |            |            |                     |
| June               | 0.731      | 0.580      | (20.65)             |
|                    |            |            |                     |
| July               | 0.740      | 0.633      | (14.45)             |
|                    |            |            |                     |
| August             | 0.742      | N/A        | N/A                 |
|                    |            |            |                     |
| September          | 0.753      | N/A        | N/A                 |
|                    |            |            |                     |
| October            | 0.725      | N/A        | N/A                 |
|                    |            |            |                     |
| November           | 0.688      | N/A        | N/A                 |
|                    |            |            |                     |
| December           | 0.708      | N/A        | N/A                 |
+--------------------+------------+------------+---------------------+

Source: National Market Information Service (SNIM)

Note: 1/ N/A not available

## Pork Carcass Average Wholesale Prices in Mexico City

(US\$/Lb.)

+--------------------+------------+------------+---------------------+
| **Month**          | **2004**   | **2005**   | **% Change**        |
+--------------------+------------+------------+---------------------+
| January            | 0.934      | 0.948      | 1.49                |
|                    |            |            |                     |
| February           | 0.906      | 0.954      | 5.29                |
|                    |            |            |                     |
| March              | 0.866      | 0.938      | 8.31                |
|                    |            |            |                     |
| April              | 0.846      | 0.928      | 9.69                |
|                    |            |            |                     |
| May                | 0.925      | 0.928      | 0.32                |
|                    |            |            |                     |
| June               | 0.998      | 0.897      | (10.12)             |
|                    |            |            |                     |
| July               | 1.018      | 0.909      | (10.70)             |
|                    |            |            |                     |
| August             | 1.018      | N/A        | N/A                 |
|                    |            |            |                     |
| September          | 1.058      | N/A        | N/A                 |
|                    |            |            |                     |
| October            | 1.018      | N/A        | N/A                 |
|                    |            |            |                     |
| November           | 0.998      | N/A        | N/A                 |
|                    |            |            |                     |
| December           | 0.998      | N/A        | N/A                 |
+--------------------+------------+------------+---------------------+

Source: National Market Information Service (SNIM)

Note: 1/ N/A not available

######## Cattle Slaughtered in Federally Inspected Type (TIF) Slaughterhouses

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    1,270,911         1,535,565         20.8
  ----------------- ----------------- ----------------- -----------------

SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

## Cattle Slaughtered in Municipal Slaughterhouses

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    3,066,503         2,830,388         (7.7)
  ----------------- ----------------- ----------------- -----------------

SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

Cattle Slaughtered In-Situ Slaughtering Facilities

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    1,858,892         1,871,123         0.6
  ----------------- ----------------- ----------------- -----------------

NOTE: In-Situ slaughter is calculated at 30 percent of total slaughter

Total Cattle Slaughtered in Mexico

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    6,196,306         6,237,076         0.6
  ----------------- ----------------- ----------------- -----------------

SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

## Hogs Slaughtered in Federal Inspected Type (TIF) Slaughterhouses

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    4,957,223         4,507,045         (9.9)
  ----------------- ----------------- ----------------- -----------------

SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

## Hogs Slaughtered Municipal Slaughterhouses

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    5,056,354         4,623,993         (9.4)
  ----------------- ----------------- ----------------- -----------------

SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

######## Hogs Slaughtered In-Situ Slaughtering Facilities

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    4,501,000         5,383,962         19.6
  ----------------- ----------------- ----------------- -----------------

##  NOTE: In-Situ slaughter is calculated at 30 percent of total slaughter

## Total Hogs Slaughtered in Mexico

  ----------------- ----------------- ----------------- -----------------
  Total             2003              2004              \% Change

                    14,514,577        14,515,000        0
  ----------------- ----------------- ----------------- -----------------

##  SOURCE: Confederacion Nacional Ganadera (CNG) with data from SAGARPA

[]{#__RefHeading___Toc94599532 .anchor}SECTION III. NARRATIVE ON SUPPLY,
DEMAND, POLICY AND MARKETING

NOTE: This report significantly increases Mexico's cattle inventories
from previous Office of Agricultural Affairs (OAA) estimates. The change
stems from an effort to harmonize the respective 2004, 2005 and 2006
estimates and forecast with the official estimates of cattle inventory
the government has established through 2003.

In addition to harmonizing cattle inventories with Government of Mexico
(GOM) estimates, OAA established guidelines for estimating cattle
slaughter. Mexican cattle are slaughtered under three different
conditions; federally inspected (TIF) slaughter plants, municipal
slaughter plants, and in situ. While there are no official estimates of
total slaughter, the GOM does publish estimates of cattle slaughtered in
TIF and municipal slaughter plants. In situ slaughter is then assumed to
equate to 30 percent of total slaughter (a widely accepted rule of thumb
in Mexico), which when combined with the official estimates of TIF and
municipal slaughter, provides an estimate of total slaughter.
Application of this methodology resulted in a reduction in slaughter
estimates, and by extension, calf crop estimates. There are no official
estimates of annual calf production.

### Cattle/Beef

While overall cattle numbers are expected to decline marginally in 2006,
beef cow numbers, calf production, and slaughter are all expected to
increase. After a delayed start to the summer rainy season, major cattle
producing regions have enjoyed good rains in 2005 and forage supplies
and grazing conditions are expected to be quite good heading into 2006,
alleviating several years of dry conditions in northern Mexico. Mexican
cattle continue to fetch good prices in the United States and cattlemen
in the north, despite heavy exports to the United States over the past
two years, appear to have worked to maintain viable populations of cows
and herd replacements. Relatively strong domestic prices have also
helped to buoy the industry over the past 18 months.

In an effort to maintain USDA Tuberculosis (TB) export status for
certain states, the Government of Mexico agreed to impose new measures
for the control of cattle that are exported and moved within states in
Mexico. These new measures are expected to add to the cost of production
in Mexico, but industry observers seem to agree that the greater
scrutiny will ultimately accelerate efforts to control TB. TB status is
particularly important for states that supply large numbers of cattle to
the United States.

Grain finishing of cattle in Mexico is gradually expanding as producers
seek to increase the quality and value of their products and to meet
expected demand for grain-fed beef in Japan and niches in the domestic
market. However, the practice is still relatively limited given the
higher costs associated with utilizing imported grains and oilseeds.
Additionally, many Mexican consumers are not accustomed to grain fed
beef.

Production Areas

Of all agricultural products in Mexico, cattle are produced over the
widest range of states and climatic regions. Cattle occupy 110 million
ha or 60 percent of Mexico's total land area. Varied production
conditions have led to regionally segmented cattle production and
marketing practices; thereby complicating the imposition of national
standards, grades, and disease control programs. Only an estimated 35
percent of meat is produced from cattle fed in feedlots; the balance is
produced from cattle that are grazed throughout their lives. Cattle are
produced in four main regions.

1\. Arid and Semi-Arid: Comprised of the states of Baja California, Baja
California Sur, Sonora, Chihuahua, Coahuila, Nuevo Leon, Durango,
Zacatecas, and San Louis Potosi. This area is considered the most
technologically advanced of all the production areas. Production systems
include cow-calf and feedlots. The average operation has 140 cows and
cattle are typically of European breeds that are better suited for
American feedlots. This area supplies the majority of the weaned calves
that are exported to the United States, where calves are typically
backgrounded on winter small grains before moving to U.S. feedlots. The
U.S. market typically pays a premium over the Mexican market for these
cattle.

2\. Temperate: Comprised of the states of Aguascalientes, Guanajuato,
Hidalgo, Jalisco, Mexico, Morelos, Puebla, Queretaro, and Tlaxcala.
Cattle in this region are primarily European breeds. Production
practices include cow-calf and small feedlots, typically for consumption
in the domestic market, especially Mexico City.

3\. Dry Tropical: Comprised of Colima, Guerrero, Michoacan, Nayarit,
Oaxaca, Sinaloa, and Tamaulipas. This is considered the least efficient
of the producing areas. Crossing of Cebu cattle with dairy breeds is
common and many cattle are dual purpose, providing milk during the rainy
season. Cattle are nearly all consumed in the domestic market. However,
a significant number of cattle are exported from Tamaulipas.

4\. Humid Tropical: Comprised of Campeche, Chiapas, Quintana Roo,
Veracruz,

Tabasco, and Yucatan. This area contains the largest share of Mexico's
cattle population and is characterized by an abundant supply of pasture
and forages, much of which have relatively low nutritional value. Cattle
are mainly Cebu or Cebu crosses with dual-purpose breeds like Simmental.
Only Veracruz, which has the highest cattle population of any Mexican
state, is a major source of export cattle. Weaned calves from this area
are often sent to feedlots in the temperate and dry tropical zones for
feeding and finishing or fed out on pasture in this region, a process
that can take up to three years.

Higher slaughter and good feeding conditions are expected to push beef
production higher in 2005 and 2006. Domestic beef production faces
competition from imports as well as cheaper domestic pork and poultry,
all of which serve to temper demand-driven growth in production.
Nevertheless, Mexican beef production has managed to grow slowly but
steadily in recent years. Preliminary statistics indicate that slaughter
in federally inspected (TIF) plants increased significantly in 2004, a
possible sign that the prospects of exports in Asian markets as well as
quality demands from the food processing and rapidly modernizing
supermarket sectors are causing producers to send more cattle to TIF
plants. Industry observers are hopeful that this trend will continue.
The 2004 production estimate reflects official data.

A significant feature of Mexico's cattle slaughter industry is how few
cattle are slaughtered in TIF Plants. The current SAGARPA listing of
plants indicates that there are 42 plants approved for the slaughter of
cattle. These plants have an estimated annual installed slaughter
capacity of 3.0 million head. However, during CY 2003, these plants
slaughtered 1.3 million head of cattle, compared to the 2000-2002
average of 1.1 million head. The higher cost of slaughter in TIF plants,
30-50 percent higher than in municipal slaughter plants, is the primary
reason for capacity underutilization. Under the "Support for Slaughter
in TIF Plant Program." SAGARPA pays subsidies of pesos 110 (USD \$10.0)
per head to offset the higher cost of slaughter in TIF plants and
improve plant usage.

Mexico has an estimated 1,500 municipal slaughter plants, which are
located in every state with the exception of the Federal District
(Mexico City). Local municipalities and the Secretariat of Health (SSA)
are responsible for regulating these plants. Municipal plants
slaughtered an estimated 3.0 million cattle in CY 2003, more than twice
the number slaughtered in TIF plants. Output is geared primarily for
sale in communities near the plants.

The practice of in situ slaughter is common in Mexico. While it is
difficult to accurately quantify this practice, official sources
consistently estimate that about 30 percent of Mexican meat production
takes place under in-situ conditions. The size and quality of cattle
slaughtered are generally thought to be significantly less than in case
of TIF or municipal plant slaughter.

### Swine/Pork

###  

Overall hog numbers and slaughter have remained relatively stable in
recent years, a trend that is expected to continue in 2006. Underlying
this trend has been a shift in the composition of slaughter from hogs
supplied by the informal sector to those supplied by larger and more
technically advanced producers as the trend to towards more modern
production practices continues. Lower costs of production relative to
the informal sector, better profitability, and strong prices during 2004
and 2005 are helping to encourage investment and consolidation in the
pork sector. Official estimates indicate that the share of in situ or
informal slaughter has dropped from 36 percent to just under 30 percent
of slaughter in recent years. Consequently, while slaughter numbers and
inventories are forecast flat in 2006, the share of hogs that are being
produced and slaughtered under more modern conditions is growing and
meat production is expected to rise.

Official estimates indicate that slaughter in federally inspected plants
(TIF) jumped to a record 4.8 million head in 2004, compared to 4.7
million and 4.0 million in 2003 and 2002 respectively. It appears that
this trend, which is expected to continue, is being driven by Mexico's
growing supermarket and meat processing sectors, which require better
quality, more uniformity, and consistency in their meat products. TIF
plants are in a better position to provide such products than Mexico's
municipal and in situ slaughter operations, which combined still account
for a significant portion of hog slaughter. A subsidy of 50 pesos (USD
\$5.0) per head for hogs slaughtered in TIF plants is also helping to
direct hogs to these plants and away from municipal and in situ
slaughter plants or situations.

Mexican producers enjoyed very good prices over the past 18 months while
U.S. prices were high. Cost of production among more technically
advanced producers ranged between pesos 12.5 and pesos 14.0 per kg (USD
\$0.54 -- 0.58 per pound) during 2004 according to official sources,
well below estimated farm prices, which averaged pesos 15.71 (USD \$0.68
per pound) during 2004. 2004 production costs among less technically
advanced producers were between pesos 17.5 and 20 (USD \$0.73 -- 0.83
cents per pound), below the average farm price. As long as grain and
soybean prices do not increase significantly from current levels,
production costs should remain at the low end of the aforementioned
ranges during 2005 and 2006. Nevertheless, with more technically
advanced producers enjoying such an advantage in production costs,
production consolidation among larger producers is expected to continue.
Current USDA forecasts point to lower hog prices during the balance of
2005 and 2006 which, if reflected in the Mexican market through imports
from the United States, could erode profits. However, current U.S. price
forecasts are still relatively robust compared to the cost of production
in Mexico and strong and growing demand from the domestic market is
expected to help support domestic production growth.

## Consumption

### Cattle/Beef

[]{.mark}

### Beef's higher cost tends to limit consumption to middle and higher income consumers along with the tourism, hotel, and restaurant sectors where imported meats are well received. Imported meats are carried widely by supermarkets accustomed to the quality and ease of handling associated with imported beef. Nevertheless, industry sources indicate that supermarkets and other buyers accustomed to dealing with imported beef are likely to try and maintain closer ties with domestic suppliers after Mexico closed its borders to U.S. beef for a short period in 2004 following the detection of BSE. Continued economic growth, growth in the tourism industry, and an expected increase in domestic beef production are all likely to push beef consumption higher in 2006. Modifications to 2004 and 2005 consumption estimates reflect changes in production estimates. 

### 

### Swine/Pork

Pork consumption continues to increase. Consumption of processed meats
(such as sausages, and hams) is growing faster than consumption of fresh
and frozen pork cuts. However, cuts still comprise the largest segment
of pork consumption. Looking at carcass prices, pork is about 20 percent
cheaper than beef, but is double the cost of chicken. Chicken
consumption has grown at almost four times the rate of pork consumption
over the past 10 years and pork consumption also faces competition from
imported turkey in the meat processing sector. Nevertheless, per capita
meat consumption is relatively low in Mexico when compared to Canada and
the United States and the potential for growth among all meat types as
incomes rise is considerable.

## Trade

### Cattle/Beef

Mexico took steps to open its market to certain low risk bovine products
in March of 2004, and has since taken steps to expand the list of beef
products that can be imported from the United States. See MX5062 for a
list of bovine products that are currently approved for import. In March
of 2005, the Secretariat of Agriculture, along with USDA and the
Canadian Food Inspection Agency signed a trilateral agreement that
established a basis for further harmonization of standards relating to
trade in bovine products in North America. The provisions of the
agreement were very similar to those established in USDA's recently
(July 2005) implemented minimum risk rule. As of the writing of this
report, it is unclear when Mexico will harmonize with the provisions
contained in the trilateral agreement.

With the continued easing of BSE restrictions on U.S. beef exports
during CY 2005, Mexican imports of U.S. beef for CY 2005 are expected to
reach 320,000 metric tons, still well below pre-BSE levels. Differing
applications of certain quality tolerances caused a number of U.S.
plants to curb their exports to Mexico during the first part of CY 2005,
but the recent harmonization of the application of certain quality
standards between Mexico, Canada, and the United States has enabled a
number of U.S. meat plants to resume exporting. Imports for CY 2006 are
forecast to increase to 350,000 metric tons given the continued growth
in the tourism and retail sectors.

Imports of live cattle are forecast to increase in 2006. Imports are
comprised of limited imports of slaughter cattle that are expected to
come from Central American countries as well as imports of dairy cattle
from Australia and New Zealand. Restrictions against imports of live
cattle from the United States and Canada due to BSE concerns, allowed
Australia, Nicaragua, New Zealand and others to export 68,000 head of
cattle to Mexico during CY 2004. Mexico recently approved the
importation of breeding bulls from the United States and is working with
USDA to establish certification requirements.

CY 2006 cattle exports are forecast moderately lower, however, much will
depend on the level of the premiums offered by U.S. importers for
Mexican feeder calves. The resumption of imports of Canadian slaughter
cattle into the United States could erode the premiums (relative to the
Mexican market) Mexican exporters have enjoyed of late. However, given
Mexico's transportation advantage into southern U.S. feeding areas and
the expectation that Mexican exporters will continue to ship as long as
there is an economic advantage in doing so, exports are expected to be
strong in 2006. At this stage it appears that heavy exports during 2004
and 2005 have not eroded herds or the availability of replacements in
producing areas that are geared to supplying export cattle. One reason
may relate to the Secretariat of Agriculture's PROGAN subsidy program
that provides funding for herd improvements, but requires producers to
meet certain herd composition and animal health benchmarks in order to
qualify for funding.

Durango, a major cattle exporting state, lost its USDA TB accreditation
during 2005 and is currently not permitted to export cattle to the
United States until further review. It is anticipated that the loss of
Durango will have little effect on overall cattle exports, as other
states are expected to make up the difference while Durango cattle find
a home in the domestic market.

Mexican beef exporters are hopeful that the recently completed free
trade agreement with Japan will lead to new export opportunities. Mexico
is planning to ship 80 metric tons per month to Japan during CY 2005.
Small amounts of Mexican beef are finding a home in Korea and exporters
are hoping to increase exports to the United States by supplying cuts
and products that are familiar to consumers of Mexican origin living in
the United States.

### Swine/Pork

Imports of live hogs are forecast to reach 225,000 head in CY 2006 as
processors seek to augment domestic hog slaughter to meet the growing
demand for pork. Pork meat imports for CY 2006 are forecast slightly
upward at 500,000 MT (CWE), driven in large part by demand from the
supermarket and processing sectors for high quality inputs, cuts, and
products. Domestically produced sausages, processed foods, and lunch
meats containing imported ingredients, as well as imported sausages and
pork products, continue to gain market niches in Mexico, particularly
among middle and upper-income consumers. 2005 pork import are expected
to pick up in the second half of the year as imports increase for the
holiday season.

CY 2006 exports of pork meat are forecast to increase to 65,000 MT
(CWE), mostly to Japan. Note that these exports are often re-exported
via the United States and are often counted as exports to the United
States in official data. While animal health concerns and relatively
high prices have limited Mexican pork export opportunities to the United
States, exporters have established a niche in Japan. As a result of a
recent trade agreement with Japan, Mexican pork exporters will enjoy
tariff-rate quota access in Japan as follows:

  -------------------------------- --------------------------------------
  Year                             TRQ/Metric Tons (CWE)

  2005-2006                        52,060

  2006-2007                        52,998

  2007-2008                        89,050

  2008-2009                        101,380

  2009-2010                        109,600
  -------------------------------- --------------------------------------

Mexican producers and animal health officials are seeking to have
additional areas declared free of Classical Swine Fever (CSF) by USDA.
Currently, the states of Sonora, Quintana Roo, Campeche, Baja
California, Baja California Sur, Chihuahua, Sinaloa, and Yucatan have
been declared low risk or free of CSF by USDA. Regionalization requests
are also under review by USDA officials for the states of Nayarit,
Coahuila, Nuevo Leon, Tamaulipas, and Durango.

## Policy

### Cattle/Beef 

See trade section for additional details.

Mexico has taken significant steps to re-open its market to bovine
products following the discovery of a single case of BSE in Washington
State on December 24, 2003. A listing of approved products can be found
in MX5062.

The Government of Mexico continues to impose dumping duties on imports
of certain beef products. However, a NAFTA dispute panel determined that
Mexico was not able to demonstrate that all beef meat imports from the
United States were damaging the domestic industry. As a result the
Secretariat of Economy modified some of the dumping tariffs and
provisions (see MX4078). At the request of the Mexican association of
feedlot owners, the Government of Mexico is conducting a sunset review
of the beef dumping duties (See MX5037).

### Mexico's Secretariat of Health will implement two new regulations governing the meat industry. The regulations will expand the Secretariat's role in the regulation of the meat industry. Of particular concern is a standard of "absent" for the presence of Salmonella in raw meat (See MX5073).

### 

Under the PROGAN support program, the Secretariat of Agriculture
provides funding for herd and genetic improvements, provided that cattle
producers meet certain criteria relating animal health standards,
management practices, and herd composition.

### Swine/Pork 

There are a limited number of programs designed to support pork
producers under the Secretariat of Agriculture's "Alliance With You"
program that provide limited subsidies for activities related to herd
and genetic improvements. Producers have to meet certain standards
relating to herd health and herd composition in order to participate.
One overriding objective among pork producers seems to be to find a way
to help small and medium-sized producers reach viable scales of
production, possibly by establishing production contracts with larger
pork processors and slaughterhouses. To date, the GOM has yet to
establish specific funding or support programs to aid smaller hog
producers.

Officials at Mexico's Secretariat of Economy have been conducting an
investigation of U.S. pork legs for approximately 18 months. It is still
not clear when the results of this investigation will be published.

## Marketing

### Cattle/Beef 

Although beef imports are expected to increase in CY 2006, they are
expected to be less than the imports registered before BSE was detected
in the United States. Marketing efforts should focus on products that
can be imported, while maintaining contact with users of prohibited
products for when the full range of bovine products resumes. Efforts
should also focus on the quality and safety of U.S. beef. Opportunities
exist in the dairy and beef industry for the sale of U.S. genetics and
breeding stock. Dairy producers in particular have been hurt by the ban
on cattle imports and are planning to source dairy cattle as soon as the
ban is lifted. In the meantime, SAGARPA has authorized the import of
breeding bulls under a confinement program and the bulls will be used
for supplying semen to the dairy industry in the initial stage of this
program.

### Swine/Pork 

There are good marketing opportunities for U.S. pork among producers of
cold cuts and supermarkets catering to middle and upper income
consumers. Educational seminars through supermarket chains, restaurants,
and hotels appear to be an effective way to increase the awareness of
the advantages of the wide variety of U.S. pork cuts.

U.S. livestock, beef and pork exporters, new to the Mexican market, are
also encouraged to contact the following trade organizations for further
market information.

+-----------------------------------------------------------------------+
| ######## TRADE ORGANIZATIONS                                          |
+-----------------------------------------------------------------------+
| THE U.S. AGRICULTURAL TRADE OFFICE (ATO)                              |
|                                                                       |
| BRUCE ZANIN, DIRECTOR                                                 |
|                                                                       |
| JAIME BALMES NO. 8 - 2^ND^. FLOOR                                     |
|                                                                       |
| 11510 MEXICO, D.F.                                                    |
|                                                                       |
| PH. (525) 280-5291/5276; FAX. (525) 281-6093                          |
+-----------------------------------------------------------------------+
| U.S. MEAT EXPORT FEDERATION (USMEF)                                   |
|                                                                       |
| JAIME BALMES NO. 8 -- 2^ND^. FLOOR                                    |
|                                                                       |
| 11510 MEXICO D.F.                                                     |
|                                                                       |
| PH. (525) 5281-6100; FAX (525) 5281-6013                              |
|                                                                       |
| GILBERTO LOZANO, DIRECTOR                                             |
+-----------------------------------------------------------------------+
| CONFEDERACION NACIONAL DE ORGANIZACIONES GANADERAS (CNOG)             |
|                                                                       |
| MARIANO ESCOBEDO NO. 714                                              |
|                                                                       |
| COL. ANZURES                                                          |
|                                                                       |
| MEXICO, D.F. 11590                                                    |
|                                                                       |
| PH. (525) 5254-3245; FAX (525) 5254-2574                              |
|                                                                       |
| OSWALDO CHAZARO, PRESIDENT                                            |
+-----------------------------------------------------------------------+
| CONSEJO NACIONAL DE PORCICULTORES (CMP)                               |
|                                                                       |
| JUAN DE LA BARRERA NO. 38                                             |
|                                                                       |
| COL. CONDESA                                                          |
|                                                                       |
| 06140 MEXICO, D.F.                                                    |
|                                                                       |
| PH. (525) 5212-1290, FAX. (525) 5211-1379                             |
|                                                                       |
| ENRIQUE DOMINGUEZ, GENERAL DIRECTOR                                   |
+-----------------------------------------------------------------------+

#