Pork’s Peak Demand


by Sheila Hildebrand

At first glance, the African Swine Fever (ASF) outbreak appears to be an unfortunate opportunity for American pork producers as they face the current domestic market malaise caused by bulging supply.  Ailing today’s hog market, Kerns and Associates Analyst Steve Meyer said “it is clear that it is neither export nor domestic consumer demand.  That leaves supply to impact both pork and hog prices.”

In spite of robust supplies of U.S. pork, U.S. Meat Export Federation (USMEF) VP of Communications Joe Schuele said the impact of ASF is “counter intuitive and there are many factors with varying levels of complexity.”

“It is more complex than thinking that the ASF will automatically result in market opportunities for U.S. suppliers,” Schuele said.

It appears that everyone is looking for answers, and the irony is that no one knows the correct question.

ASF is a highly infectious virus with up to 100 percent mortality rate in pigs.  It presents no known threat to humans.  Paul Sundburg with the Swine Health Information Center (SHIC) said the disease is generally spread through direct pig to pig contact; however, it is also transferrable through contact with contaminated secretions, blood or manure.  The disease has affected Africa, significant portions of Europe and is currently spreading across large areas of Asia – largely unchecked.  There is no cure or treatment for the disease.

In its September 30, 2019 Swine Disease Global Surveillance Report,SHIC reports that the first Chinese outbreak of ASF occurred in August 2018.  As of the report date, China had culled 1,170,000 hogs.   The 20 percent cull is a measure implemented to contain the spread of this extremely contagious disease; however, it does not reflect its total death toll, which appears to be an elusive and highly speculated number. The report said, “Rabobank, a financial services company that specializes in food and agriculture, predicted that this year, China would lose between 20 and 70 percent of its herd, as many as approximately 350 million pigs, a quarter of the world’s total (hog population).”

When asked to validate and quantify the magnitude of the ASF losses in China, Sundburg candidly said, “nobody knows.”

“Nobody knows because the Chinese government does not report and what they do report is not trustworthy.”

 

Pork In China…

ASF has been disastrous to China’s socio-economic wellbeing.

Ag News Feed reported earlier this year that China produces and consumes nearly half of the world’s pork. In an article titled African Swine Flu and the Chinese Hog Trade, Andy Waldock asserts that “Hogs are China’s primary protein source.  It is not only the world’s largest pork-producing nation, but it’s also the world’s largest pork importer.  The rise in the Chinese standard of living over the last 15 years has caused a surge in protein demand.  A more fulfilling diet is one of the fundamental needs/wants to be met with newfound prosperity.  Comfort food will also be one of the last things given up as an economy slows or food prices soar.”

According to a Swine Disease Global Surveillance Report released on November 5, pork makes up 70 percent of China’s total meat consumption.  Today, pork in China costs close to 70 percent more than it did a year ago, the report read.  According to China’s National Bureau of Statistics, this rise caused the food price index to reach a seven-year high and pushed Chinese inflation to 3 percent in September, up from 2.8 percent in August.

 

Protein Demand…

It can be said in business that one man’s disaster is another man’s delight and so it would seem for U.S. pork producers at first glance.  It would once again appear that irony resonates in this tale with the realization that “if you don’t go in, you can’t find out!”

The November 5, 2019 USMEF Call provided insight into the tempered exuberance of U.S. pork producers. USMEF Senior Vice President Joel Haggard said U.S. exports to China have increased, but “it could be much higher.” Currently the U.S. pork market is at 13 percent, due in part to the “72 percent punishing due on our imports versus the 12 percent duty that our competitors face now,” Haggard said. This makes U.S. pork a “viable” option, but the “supplier of last resort.”

“We see incredibly high prices out of our main competitor for the pork market – Europe,” Haggard added. “This is a sign of strain in the global supply chain’s ability to supply China with what they need.”

For the period of January through September 2019, the U.S. exported 2 million metric tons of pork to China, Schuele said.  The top three volume buyers of U.S. pork in the same period were Mexico, China and Japan, respectively.  Ranked according to value, the top buyers of U.S. pork were Japan, Mexico and China.

“Watching the headlines all year, one would think export demand is a disaster,” Kerns and Associates Analyst Meyer said.  “However, exports so far in 2019 have been strong.  On a product-weight basis, total exports in August were 20 percent larger than last year in tonnage and 21.4 percent higher in value.  Year to date data is not quite as encouraging with total exports through August up 4.6 percent; however, value of the exports was 6.4 percent lower than one year ago.”

In Waldock’s Ag News Feed article, he said the four percent trade “roof” is a critical number, but cited an entirely different reason for the cap – ractopamine.  China does not allow the drug to be given to its animals, or imported product.  It is used in about half of all U.S. animals at the end of the feeding cycle, including hogs, turkeys and cattle, Waldock wrote.

“Ractopamine, even at trace level, makes them ineligible for export to China,” the article said.  “So far, the U.S. has been slow to jump through the hoops necessary to remove residual trace amounts from production facilities bringing them into compliance.  Many U.S. operations seem unwilling to place much faith in the consistency of Chinese demand.  Meanwhile, The EU and Brazil have increased exports to China to fill the void.”

The one U.S. pork producer keying in on ractopamine-free product is Smithfield, which is owned by Shaunghui Internation Holdings, now W.H. Group, the largest Chinese pork producer, Waldock pointed out.  Ironically, increased trade with China stands to most benefit Smithfield, a Chinese owned company operating in the United States.

“Smithfield has been decreasing its ractopamine user ever since,” the article read.

According to USMEF Senior VP Haggard, China is now increasing their utilization of substitute proteins as they find it “difficult to fill the shortfall.”  Chinese consumers are craving more beef, but this may not be only reflective of a protein shortage.

“U.S. beef exports to China has been soaring for 3-4 years, so it’s difficult to ascertain the incremental effect of ASF.  The Chinese appetite for beef has grown exponentially for the past 5 – 8 years. It’s a new phenomenon,” USMEF’s Schuele said.

One place they haven’t turned for protein, according to USMEF’s Schuele, is fake meat.

“Those who choose not to eat meat already have alternative dishes in Asian cuisine.  Consumers are not seeking out meat-like alternatives,” he said.

 

The Future For U.S. Pork…

In her Successful Farming Article, Pork Powerhouses 2019: Expansion Continues, Betsy Freese reports that “The U.S. pork industry is still expanding despite tariffs, labor challenges and the global disease risk.  The nation’s largest producers added 69,000 sows in 2019.”

National Hog Farmer reported that pork production is expected to increase again in 2020.  But according to Rabobank, an economic downturn could hamper domestic consumption, the article read.  Couple that with “productivity gains” that “will exacerbate the U.S. oversupply of pork and poultry, limiting domestic price improvement.”

 

 

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