Representatives from all major pork exporting countries and China’s domestic industry recently gathered in Chengdu, China, for the International Meat Secretariat (IMS) World Pork Conference, the Shuanghui-World Meat Industry Development Conference and the 17th annual China International Meat Industry Exhibition (CIMIE).
USMEF Economist Erin Borror delivered a keynote address on the economic impact of African swine fever (ASF) on global meat trade at the World Pork Conference. She highlighted the uncertainty about the magnitude of ASF’s pork production impact, not only in China but also in Southeast Asia and most recently spreading into South Korea. Given that China’s August hog inventory was down 38% year-over-year, even relatively conservative estimates suggest a huge reduction in global pork availability in 2020 and significant decreases in pork consumption. Global pork trade will set new records in 2019 and again in 2020, likely increasing by double digits both years. The U.S. is the best-positioned supplier to dramatically increase pork exports next year, with record-large production and stymied current export volumes due to China’s retaliatory tariffs. The combination of ASF and tariff uncertainty has caused huge volatility in the U.S. hog and pork markets, especially futures contracts. These price swings and comparisons to 2014, when the global industry was dealing with porcine epidemic diarrhea virus, give some frame of reference of what could be ahead as prices will likely ration global pork demand.
Other speakers also discussed their experiences with ASF, including considerable discussion on the current state of China’s pork production and the steps being taken to help China’s pork market stabilize and recover. Gao Guan, vice president of the China Meat Association, predicted that pork production will begin to noticeably rebound in the second half of next year. He stated that pork consumption has declined in China and the 2020 balance sheet will see domestic production bottom out at 44 million metric tons (mt), compared to 54 million mt in 2018. Imports will rise to 5 million mt, resulting in a record-low self-sufficiency rate of 90%.
Other speakers were less optimistic about the production rebound materializing in 2020, citing ongoing ASF outbreaks in southern China and continued reluctance by some producers to re-populate. The consensus among Chinese conference participants is that ASF will permanently change the structure of China’s pork industry, including predictions that the industry will consolidate at the production, slaughter and processing levels, and that harvest and processing will shift closer to large production areas. Most envision less movement of live hogs in the future, with more chilled meat distribution.
The situation presents opportunities to greatly expand pork trade, though most conference speakers agreed that the hole in China’s pork supplies cannot be entirely filled with imports. In fact, the level of imports remains a subject of considerable speculation. Carme Aledo Escandell of the Business Federation for the Spanish Meat Industry illustrated the impact of Chinese buying by highlighting sharp year-over-year price increases for several of Spain’s popular export cuts, including a jump of more than 80% in the price of pork fat. Others noted that Canadian pork’s absence from the Chinese market, combined with the punitive retaliatory duties on U.S. pork, are supporting EU and Brazilian pork prices. Borror argued that the U.S. is currently the only supplier able to significantly ramp up export volumes and noted that even at current duty levels, prices for certain U.S. pork cuts within China could be near those of domestic and competitors’ products.
A spokesman from China’s Ministry of Commerce said recently that China had purchased a “considerable” amount of U.S. soybeans and pork ahead of the next round of U.S.-China trade talks in Washington, and the topic of U.S. pork purchases remains an important one for all global pork suppliers. At CIMIE, USMEF fielded several questions about the duty “exemptions” for U.S. pork, as first reported by state news agency Xinhua on Sept. 13. No official information has been released regarding exemptions or duty reductions for U.S. pork, and USDA’s most recent weekly export sales reports do not show high levels of new purchases (the last large week for sales – nearly 11,000 mt – was for the week ending Sept. 5). Interest in both U.S. pork and beef was strong at CIMIE, with USMEF distributing samples.
USMEF participated in two smaller conferences in Chengdu prior to the World Pork Conference. The U.S. Agriculture and Food Partnership held a bilateral roundtable for sharing ideas and industry updates with CMA and its members, including leading meat processors Shuanghui Investment and Development Co., Ltd., Sichuan Goldkinn Foods, and Beijing’s largest processor, Er Shang Group. The Global Meat Industry Executive Roundtable was held the following day, with USMEF Senior Vice President for the Asia Pacific Joel Haggard chairing a panel on the risks and rewards of global trade. Bill Westman, senior vice president of international affairs for the North American Meat Institute, moderated a panel on food safety and sustainable development.
In meetings with private industry commodity analysts and USDA representatives in Beijing, the topic of China’s pork balance sheet was further discussed. Some industry observers forecast that year-over-year decreases in sow and hog inventory numbers will start to shrink by late fall. Bolstered by signs of growth in live hog numbers in China’s northeastern region, the first affected by ASF, the national inventory could start to trend higher in the spring of 2020. Huge profits of $200 to $250 per head and government incentives should entice rebuilding and expansion, but the risks remain high.
USMEF-Beijing reports that more frozen imported pork is available in retail markets. In a recent visit to a METRO Cash-and-Carry outlet in Beijing, cartons of European spare ribs and feet were on sale, but no U.S. products. At COFCO Meat’s new wholesale store in Beijing, boxes of U.S. pork spare ribs were on sale, along with various European items. An even larger variety of imported beef items was on display, including U.S. ribeyes, Brazilian shin/shank and various cuts from Uruguay and Argentina. China released more frozen meat from state reserves ahead of its Oct. 1 National Day holiday, including 20,000 mt of pork, 2,400 mt of beef and 1,900 mt of mutton. Although reserve volumes are relatively small, sources in the trade indicate they can have a bearish impact on the market, including on wholesale prices.