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China’s Hog, Pork Prices Still Climbing

At the end of July, China’s live hog price moved above 15 RMB/kg for the first time since February, averaging 15.15 RMB/kg ($1.12 per pound). This was nearly 9 percent higher than a year ago and represented a 21 percent increase from this year’s low point in early May. Prices have continued to trend higher in August, reaching 15.43 RMB/kg ($1.14 per pound), up 10 percent from last year and outpacing analysts’ estimates. This has occurred despite seasonally lower pork consumption during summer months and no evidence of extreme breeding herd liquidation or disease issues. Piglet prices are also on the rise, moving above year-ago levels for the first time, at $2.18 per pound, up 3 percent from last year and 20 percent higher than in early May – suggesting that China’s increasingly commercialized hog producers are restocking as profitability improves. Pork and hog prices could also be supported by a persistent heat wave throughout southern China that has affected transportation in regions with high levels of hog production. China’s high beef and mutton prices – up 31 and 20 percent, respectively, from a year ago – are also supportive of pork prices. Sluggish chicken demand could also be favoring pork consumption, as poultry prices have recovered somewhat (+9 percent) from their early May low but are still down about 1 percent from last year. China’s live hog prices should improve seasonally through the end of 2013 as demand increases, but the extent of the increase and corresponding import demand will depend partially on China’s domestic production. If producers have been holding on to hogs hoping for higher prices, this could put a damper on the overall price increase. U.S. exports will continue to see strong competition from the EU – but in general, higher Chinese pork prices mean larger imports. This is especially the case when the gap between China and U.S. hog prices widens, as shown in the chart below. USMEF staff in the region report that demand for most imported offals is steady to firm, although importers of pork products from all supplying countries are facing enhanced inspection for ractopamine. U.S & China Live Hog Prices weekly since January 2010 through July 2013

Canada’s exports to China grew strongly in the first half of this year, increasing 35 percent to nearly 87,000 mt. This growth occurred while exports to Russia were down 62 percent to just 39,000 mt, as Canada has struggled with Russia’s beta-agonist related restrictions. But China delisted a large Canadian plant July 25 and a second plant in early August, so we now expect a slowdown in Canadian exports to China. The EU has benefited from China’s ractopamine restrictions (see below) but growth in European pork to China has been partially offset by a decrease in shipments to Hong Kong. EU export data is only posted through May, and shows combined China/Hong Kong exports up 9 percent from last year, to nearly 448,000 mt. The EU is the largest supplier to China, with about 60 percent market share, based on China’s import data for the first half of the year. But EU pork prices are also on the rise, potentially opening opportunities for U.S. exporters.

Pork & Variety Meat Exports to China/Hong Kong monthly since January 2010 through July 2013

Chile, which is the other significant pork exporter not using ractopamine, increased its exports to China by 88 percent in the first half, reaching 17,853 mt. However, Chile is now facing dioxin-related restrictions on its meat and poultry exports to China. Even with the market access challenges, U.S. exports of pork variety meats to China/Hong Kong were up 29 percent in volume (105,927 mt) through June and 44 percent in value ($227 million). China’s demand for variety meats has remained strong, with prices for key items like front and hind feet, stomachs, ears and tongues all trending higher in August, although still off from highs earlier in the year. We expect demand for variety meat to remain strong, especially with China’s pork prices continuing to rise and other suppliers facing headwinds. This could expand opportunities for U.S. pork and pork variety meat exports to China, though it will remain a challenging market.

China & US Hog Price Ration monthly since January 2010 through July 2013

US Pork & Variety Meat Exports to China and Hog Price Ration quarterly since January 2010 through July 2013