China will scramble for meat in 2020: analyst

Observers believe nothing can be produced in the volume China requires to fill the gap created by African swine fever

SASKATOON — The devastation African swine fever is causing in the Asian pork industry will push the entire global protein market higher, says American analyst Brett Stuart.

The president of Global AgriTrends said the disease is a “global market game changer.”

The impact of the coronavirus also sweeping China is still unknown, but will play a role in the market, he said.

Although pork has historically led the way in Chinese meat consumption, the country is buying as much beef as it can.

“China is going to be critical to this industry going forward,” Stuart told the Saskatchewan Beef Industry Conference.

“Beef demand in China was red hot before African swine fever. After African swine fever the price takes another 20 percent increase.”

This market is different as it is demand, not supply, leading the drive. The global cow herd has held stable for the last five years yet prices have been steady or climbed.

The hog market seems to be having a hard time believing what is happening in China, Stuart said. He called it irrational.

The country officially says 40 percent of its sow herd is gone but he estimates it at closer to 65 percent.

In context, North America has about 6.5 million sows and China just lost 24 million.

“I look at U.S. hog futures and no one will believe it. We’re not even making money on hogs. They’re pretty suspicious of this, especially the investors.”

But he said a look at hog and pork prices in China provide evidence as to what is going on. Hogs in China are 400 percent of the U.S. hog price, and pork prices are 127 percent higher than a year ago.

Chinese pork consumption is typically about 80 pounds per person, compared to 20 lb. of poultry and 10 lb. of beef.

“It’s just not there,” Stuart said. “By my math I say China is going to have about a 24.5 million tonne gap in protein in 2020.”

Current global pork trade is about eight million tonnes.

Stuart said there is nothing that can be produced in the volume China requires to fill the gap. Chinese pork prices are going to stay very high for a long time as a result.

He added that China’s claims that it can restore normal pork supply by 2021 is simply propaganda; there aren’t 20 million sows on the global market.

The signing of the U.S.-China trade deal provides opportunities for beef exporters. The Chinese have accepted USDA plant approval, promised tariff waivers for Chinese companies to buy meat and moved on maximum residue limits for hormones to fall in line with other countries.

Overall, the deal commits China to buying $32 billion worth of American agricultural products.

“The most China has ever bought was $25 billion back in 2012 when corn and soybean prices were record high,” Stuart said.

The agreement comes into force Feb. 14 and the MRL standards go into effect March 14.

Stuart said it’s possible cull cow and bull beef could go sooner because hormones aren’t used in those animals and China buys all types of beef.

All this is relatively new to North American beef exporters. China wasn’t even on the map in 2010 and is now buying 30 percent of the global imported beef supply, Stuart said.

“I think there’s a pretty strong case for Canada to go ask for equivalency,” he said. “You’re not going to hurt anyone’s feelings by getting access to China. They just simply cannot get enough beef.”

In 2018, Japan was the biggest meat and poultry importer at $13 billion. China is now importing $2 billion worth each month, Stuart said.

He said it’s still uncertain what the Wuhan coronavirus will mean for exports. People typically shop every day there and don’t have food storage in their homes, but are under lockdown.

“We’re piling up containers in the ports,” Stuart said. “We could potentially back up too much product.”

This is rattling global financial markets, he said.

Meanwhile, the fires in Australia have killed about 8,000 cattle and 60,000 sheep, according to Stuart’s colleague, who lives in the affected area, and destroyed less than one percent of the grazing land.

The real issue in Australia is the ongoing drought. The herd there is down to a sustainable level, Stuart said, which will keep supply down.

This supports strong export markets for North American producers.

“The tailwinds are blowing on this market,” Stuart said. “There is the potential for significant price increases as we go through 2020.”

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