Speculation grows about future Chinese pork imports

Hog producers might have dodged a fourth-quarter price collapse, but futures since then have cratered as American pork production exceeded expectations.

But hog futures prices could rally later this year depending on what happens in China as it battles African swine fever in its herd.

One Canadian analyst, Jim Long, suggests that once the unprecedented herd liquidation occurring in China comes to an end, there will be a massive shortfall in domestic production, requiring huge pork imports from the rest of the world.

He is not alone in his speculation.

The likelihood of these predictions coming true is hard to judge given the uncharted waters we are in, considering that China and the United States have not settled their trade war, although hopes for an agreement are quickly rising.

Also, the Chinese health authorities and environmental activists might take advantage of the turmoil in the hog industry to advance their goal of reducing meat consumption in the country.

In 2016 the organization that provides the country’s dietary guidelines advised consumers to lower their meat consumption by half to address rising obesity and other diseases.

And this year groups such as PETA and WildAid had campaigns during the lunar New Year, which coincidently marked the turn to the year of the pig on the zodiac cycle, to try to get people to trim pork from celebrations to reduce greenhouse gas production associated with livestock.

Still, hopes for Chinese buying from the U.S. and elsewhere have supported deferred hog futures for July and August. But in the immediate term, American and Canadian hog producers are losing money.

After drifting lower through January and most of February, Chicago futures saw limit-down drops on Feb. 18-19 pushing the April contract to a four-month low, touching US52.25 cents per pound before recovering a little the following day.

This goes against the usual trend for this time of year when hog prices are rebounding from the December lows.

The U.S. national barrow and gilt average carcass base price last week was a little less than US$48 per hundredweight. That was about $17 lower than the price at the same time last year and about $22 lower than the five-year average for that point.

In Canada, the Signature 3 weekly average price to Feb. 22 was C$51.97 per hundredweight, down from $67.51 at the same time last year.

U.S. hog slaughter in recent weeks has regularly topped 2.5 million per week, up more than 100,000 per week or about five percent ahead of the same period last year. That is significantly more than what was signalled in the December hogs and pigs monthly report.

New packing plants opened in the U.S. in 2018 and they are showing their muscle when it comes to slaughter.

January and February are traditionally slow periods for domestic pork demand. As well, the export market for American pork is restricted by tariffs imposed by Mexico and China, America’s No. 1 and No. 5 pork export destinations respectively.

The tariffs were a response to America’s tariffs on imported steel and aluminum.

Mexico’s tariff on American pork is particularly damaging because of its usual position of leading importer.

Mexico agreed with the United States and Canada to form the new U.S.-Mexico-Canada Free Trade Agreement but that did not end the tariffs. The trade agreement must be passed by each country’s legislature and it will likely be a prerequisite for the U.S. to drop its steel and aluminum tariffs before the retaliatory meat tariffs are dropped and legislators sign on.

China’s tariffs on American pork are also an impediment, but it likely would not be buying much pork right now anyway.

China’s pork imports from all sources in December were down 14.4 percent.

The herd liquidations associated with the fight against ASF have increased the amount of pork available to the domestic market.

This, coupled with a ban on movement of pigs from regions that have infections has severely depressed the price in affected areas, pushing many small producers to the brink of bankruptcy and beyond, according to news reports.

The travel ban was lifted in late December, but only for larger incorporated producers, not small farmers.

China’s government for years had policies that encouraged transition from small production units to big corporate entities that arguably have better sanitation and disease protocols.

They also encouraged a production shift north, away from raising hogs in the densely populated south.

Some reports show statistics that China’s market hog inventory in January was down 13 percent from the same point the year before and the breeding sow herd was down 15 percent.

To put that into numbers, Long, who is president of Genesus Genetics, a swine genetics company, says that during the past 18 months, the Chinese sow herd is down about six million head. That is the size of the entire U.S. sow population.

He says that he is hearing that another three to five million sows could be culled. That would bring the total down by 10 million. If true, that would reduce annual production by a staggering 150 million market pigs, Long notes.

But at the same time, I also read news reports that say Chinese officials are advising producers to rebuild their herds “in a timely manner” because of expected shortages in the second half of the year that will lead to rising pork prices.

Agricultural statistics from China are suspect. Often production and stocks figures from private companies are vastly different than official government numbers. Also, the government from time to time makes huge adjustments to their own figures.

Will China start importing massive amounts of pork? Who knows for sure, but if they do, they will likely carefully manage it. They managed without American soybeans through much of 2018. They leaned heavily on increased imports from Brazil but they also significantly reduced soybean consumption overall.

They could simply eat less pork. After all, they are already the largest pork eaters in the world on a per capita basis and as mentioned, health and environmental advocates are campaigning to lower consumption. They could partly shift to chicken.

On the other hand, the Beijing government appears to want to settle trade issues and get back to a regular import relationship.

According to a Bloomberg news report, the Chinese offered to buy US$30 billion in U.S. agricultural products. However, the reports are based on unnamed sources and are lacking in detail. Nevertheless, the news reinforces speculation that Beijing is weakening its hard line in trade talks.

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