China’s worsening hog disease fueling U.S. exports

 Resize text         Printer-friendly version of this article Printer-friendly version of this article

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.

 U.S. pork shipped to China during the first eight months of 2011 was valued at $316.8 million, more than triple the level for the same period in 2010, according to the U.S. Meat Export Federation.

With the approach of China’s winter festival season, a peak season for meat consumption, the country’s pork demand is poised to increase in coming weeks, Rabobank said.

“High demand and slow supply recovery suggest that prices will likely stay high,” Rabobank wrote. “This also suggests the continuation of pork imports at relatively high levels.”

China’s swine herd will total 459.1 million head at the end of 2011, down 3.8 percent from the end of 2010, according to a U.S. Department of Agriculture forecast. The herd is expected to shrink another 4.6 percent by the end of 2012, to 437.9 million head, the smallest since 2006.

Nelson, who’s based in Chicago, cautioned that disease problems led to a sharp increase in China’s pork imports just a few years ago that was followed by an even sharper cutback. In 2008, China bought 361.6 million pounds of U.S. pork, up 59 percent from 2007. In 2009, China’s purchases plunged 85 percent, to 54 million pounds.

“Hopefully, producers have a sufficiently long memory of what happened in 2008 when China turned off the import spigot,” Nelson said in an e-mail. “Prices collapsed and hundreds of millions of dollars in equity was lost” by U.S. producers.

But the recovery of China’s pork production “is uncertain and still faces significant challenges,” according to the Rabobank report, which was based on information from Chinese pork producers and co-written by Rabobank analyst Pan Chenjun, who’s based in Beijing.

“Production recovery and reduced inflation will depend on whether the disease can be contained,” Rabobank said. “China may continue to import pork and fill the gap in the near term.”

In trading Nov. 8, CME Group lean hog futures settled around 85.3 cents a pound. Futures hit a record $1.06025 in August and are up almost 27 percent over a year ago, based on the closest-to-expiration contract. CME hog futures are based on carcass values.


Prev 1 2 Next All



Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left


644K Hybrid Wheel Loader

The 229 hp 644K Hybrid Wheel Loader from John Deere utilizes two sources of energy: diesel and electric. The machine’s ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Leads to Insight