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China rebuilds its swine herds; move could hurt U.S. exports there

China rebuilds its swine herds; move could hurt U.S. exports there

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African Swine Fever (ASF) has eroded two-thirds of China’s hog herd and drove its hog prices to record highs. That helped U.S. exports there. China now accounts for nearly 8% of U.S. pork production, compared to around just 2% in 2018.

According to a new report from CoBank’s Knowledge Exchange, China is making progress rebuilding its hog herd, jeopardizing the U.S. export picture over the next 3 to 5 years.

“China’s pork market is showing the early signs of herd rebuilding and hog prices have fallen 30% from their peak a year ago,” said Will Sawyer, lead economist, animal protein at CoBank. “This increases the risk of an oversupply of U.S. pork if exports to other markets, primarily in Asia and Latin America, are unable to absorb this supply.”

He said the loss of exports to China likely would lead to difficult conditions for U.S. hog producers and processors alike. According to Sawyer, the U.S. pork industry has built multiple new plants over the past four years, increasing packing capacity by 12%, with much of this new capacity eyed for international markets.

The U.S. Meat Export Federation (USMEF) reported that September exports of U.S. pork increased 10% year-over-year, keeping 2020 exports on a record pace.

According to USMEF, pork exports reached 222,475 metric tons (mt) in September, with value increasing 6% to $563.2 million. Through the first three quarters of the year, exports were 16% ahead of last year’s record pace in both volume (2.22 million mt) and value ($5.69 billion). The increases were even stronger for pork muscle cuts, jumping 22% to 1.87 million mt valued at $4.93 billion (up 19%).

USMEF said that the pork export value averaged $51.07 per head slaughtered in September, up 2% from a year ago, while the January-September average increased 14% to $58.63. Exports accounted for 26.5% of total pork production in September and 23.9% for muscle cuts only, up from 25.1% and 21.7%, respectively. Through September, exports accounted for 29.6% of total production and 26.9% for muscle cuts, up from the 2019 ratios of 26.3% and 22.8%.

USMEF reports that pork exports to the China/Hong Kong region remained strong in September, outpacing last year by 23% in volume (62,791 mt) and 14% in value ($132 million) and pushing exports through the third quarter to 800,747 mt (an increase of 96% from a year ago) valued at $1.83 billion (up 120%). However, September exports to China/Hong Kong accounted for 28% of total U.S. export volume and 23% of total value, compared to 37% and 33%, respectively, from January through August. U.S. pork continues to face a 25% tariff disadvantage in China, due to retaliatory duties related to U.S. section 232 tariffs on steel and aluminum.

“Exporting countries are watching the hog production recovery in China very closely, because we know its demand for imported pork is moderating,” said USMEF President and CEO Dan Halstrom. “While USMEF is pleased to see U.S. pork exports to China/Hong Kong maintaining a strong pace, it is vitally important that our export destinations remain diversified. The U.S. industry continues to pursue this goal aggressively, both in the Asia Pacific region and the Western Hemisphere.”

After the discovery of ASF in Germany in September, Sawyer said that many key pork importing countries banned German pork, opening the window for increased shipments from the U.S. and other key pork exporters. He said this provides the U.S. a short-term opportunity to increase market share in China, as Germany represents approximately 14% of China’s pork imports.

Although the ban is unlikely to last forever, and with China’s hog prices showing signs of weakening, Sawyer said the U.S. still may feel the pressure of reduced Chinese pork imports.

While lower trade flows with China to pre-ASF levels would bring a good deal of stress to the U.S. pork sector, he said there are strategies and changes the pork industry can make now to help dampen that impact. Shifting trade relationships from transactional to strategic, pursuing trade diversification and building the U.S. market are among those strategies.

Sawyer said the greatest opportunity and possible challenge for the U.S. pork sector is the U.S. market itself. With few exceptions over the last 30 years, he said the annual per capita pork consumption in the U.S. has been range bound between 48 and 52 pounds.

Spurring new or increased demand from other markets is another industry imperative, according to Sawyer said. He said these growth opportunities may come from U.S. pork’s core trade partners, but by also expanding trade opportunities with secondary customers. He said markets like Japan, Korea and Mexico are critical in the next few years. The U.S. pork sector also has great export opportunities in numerous smaller markets, especially in the Caribbean, and Central and South America.

Sawyer said U.S. packers have opportunities to strengthen their relationships with importers and customers of their end products. He said with all major pork-producing countries eyeing the Chinese market, suppliers with strategic relationships in China will fare much better during the down cycle.

“One of the many lessons from the COVID-19 pandemic of 2020 is the necessity of a strong relationship between producer and packer,” Sawyer said. “This is true in both beef and pork, as those producers who had a deep and strategic relationship with their packer fared far better during the plant shutdowns and slowdowns in April and May 2020.”

He said the relationship between a hog producer and their packer can become strategic in many ways, whether that be by contract, ownership, geography, size, or efficiency. In an environment where demand is falling as exports shrink, Sawyer said producers with the deepest relationships will better weather any changes in plant capacity that may come.

USMEF said beef exports were fairly steady in September with last year in major Asian markets but trended lower overall.

September beef exports were down 6% from a year ago to 103,277 mt, valued at $600.9 million (down 9%). Through September, exports trailed last year’s pace by 8% in volume (911,936 mt) and 9% in value ($5.55 billion).

Beef export value averaged $274.31 per head of fed slaughter in September, down 14% from a year ago, while the January-September average fell 5% to $295.21. Exports accounted for 12.8% of September beef production and 10.5% for muscle cuts only, down from 14.6% and 11.9%, respectively, in September 2019. January-September exports accounted for 13.2% of total production and 11% for muscle cuts, down from 14.3% and 11.6%, respectively.

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