China faces worsening disease problems in its pig herd that probably will keep the country’s pork supplies tight into next year, further fueling an export boom for U.S. hog producers who are already shipping the meat overseas at a record pace, according to Rabobank Group.
Two major afflictions, foot and mouth disease and porcine reproductive and respiratory syndrome, have forced Chinese hog farmers to slaughter animals to contain outbreak, Rabobank said. That’s led to a drop of about 15 percent in prices for slaughter-ready animals over the past two months.
“In the midst of disease fears and price volatility, many farmers are decreasing production and quickening the liquidation of market hogs,” Rabobank analysts said in the Nov. 4 report. “Farmers’ enthusiasm to replenish stock in recent weeks has decreased. Thus, pork supplies likely will remain tight well into 2012 as disease fears and decreasing profits are jeopardizing the inventory recovery.”
China’s purchases of U.S. pork rose nearly six-fold during the first eight months of 2011, compared with the same period in 2010, according to U.S. Department of Agriculture data. Robust exports contributed to a rally that sent Chicago hog futures to an all-time high in August.
If the disease problems are as serious as appears to be, strong U.S. pork exports to China “could persist for some time,” said David Nelson, one of the three Rabobank analysts who wrote the report. “This of course would be supportive for hog prices.”
Pressured by herd liquidation, prices for slaughter-ready hogs in China recently fell to about 17.4 renminbi per kilogram, or about $1.24 a pound, according to Rabobank. That’s down from a record 19.9 renminbi late this summer. By comparison, slaughter hogs in the U.S. are currently about 66 cents a pound, according to USDA reports.
China’s meat demand grew rapidly in recent year as its economy expanded and incomes for many of its more than 1.3 billion people increased. While the country’s hog industry has also grown, small, “backyard” farming operations still account for about a third of China’s overall pork supply, and limited access to land and capital held back further expansion, according to Rabobank.
That led China to turn increasingly to the U.S. From January through August, U.S. pork exports to China totaled 266.4 million pounds, up from 46.7 million pounds during the same period a year earlier, according to USDA reports. China’s purchases accounted for 8.1 percent of total U.S. pork exports so far this year, up from 1.9 percent a year ago.