The resumption of Canadian pork exports to China will have no direct impact on hog prices, says an industry executive.
“We weren’t affected by it when the ban occurred and we aren’t going to be affected by it since it has been lifted,” said George Matheson, chair of the Manitoba Pork Council.
“If people want me to say that producers are jumping up and down and all of the sudden we’re going to be getting more money, no, that’s not the truth at all.”
That is because Canadian hog prices are inextricably linked to those in the United States and U.S. prices are depressed due to overproduction and a hefty 72 percent tariff on exports to China.
Matheson said a U.S.-China trade deal would boost prices way more than China lifting its ban on Canadian pork.
He is frustrated that Canadian hog producers face the same plight as those in the U.S. but don’t receive the same kind of government subsidies.
“We’ve asked for assistance but they don’t give it to us,” said Matheson.
Gary Stordy, director of government and corporate affairs with the Canadian Pork Council, agreed that there will be little direct impact for independent producers who have pricing formulas based off of the U.S. price.
But the resumption of exports to China does affect producers who contract out services to companies that own the hogs. They can have more confidence that there will be another contract on the horizon.
Stordy said processors were losing money every week with China out of the market and some were reaching the breaking point.
“They could not sustain the reduced market access for any length of time,” he said.
China was Canada’s top pork market by volume and the third-largest market by value through the first eight months of 2019.
Exports during the first half of the year were on par with the $514 million of sales for all of 2018.
“We were forecasting at a bare minimum that this was going to be a $1 billion market for us in 2019,” said Stordy.
And then it all came to a grinding halt on June 25 when China discovered a fraudulently certified shipment of Canadian pork.
Four months later trade has resumed between the two countries. If it had lasted longer, some processors would have gone out of business, he said.
Matheson isn’t buying that.
“I highly doubt it,” he said.
But he agreed that China is a valuable market for some otherwise tough-to-sell pork products and that would definitely have been causing some financial angst for processors.
China buys products other countries don’t, such as hocks, heads and organs. Without that market, those products are discarded or rendered, resulting in substantial lost revenue for processors.
Hog prices have risen in many markets around the world as a result of African swine fever (ASF), according to a recent report by Rabobank.
The disease has resulted in a 25 percent reduction in the global swine herd.
Canada is not one of the markets that has benefited because of the strong link to U.S. prices, which are depressed due to record hog slaughter in that country.
“Robust (U.S.) exports are absorbing much of the production increase, yet have been unable to fully keep pace,” said Rabobank.
The export markets that have really benefited from ASF are Europe, where pork prices are up 31 percent year-on-year and Brazil where prices have risen 17 percent.
Rabobank is forecasting continued price increases in the last quarter of 2019 and into 2020.
“Despite rising economic incentives, we expect a limited global production response as environmental and regulatory constraints along with the threat of ASF constrain the industry’s ability to expand,” stated the bank.
“This imbalance is expected to drive higher and more volatile markets in the coming months, magnifying an already tenuous situation.”
Story said the constraints to expansion in Canada have more to do with land availability and Canadian prices being tied to those south of the 49th parallel.
Producers are also rightfully concerned that Chinese production will rebound.
“China is going to rebuild their domestic production. Rapid expansion only comes with rapid loss down the road,” he said.
Chinese pork and hog prices are up 100 to 130 percent year-on-year, according to Rabobank. That is because the country has lost 55 percent of its hog herd.
Repopulation in large commercial operations is expected to stabilize market losses in 2020.
“But a full recovery could take several years. Rabobank expects a rebound in production beginning in 2021,” stated the report.