- DTN Headline News
China Pork Under Pressure
Wednesday, December 5, 2018 2:34PM CST
By Katie Dehlinger
DTN Farm Business Adviser

CHICAGO (DTN) -- China's pork industry is in the midst of major structural changes, and the outbreak of African swine fever in the hog herd is creating regional supply and demand imbalances unlike any China's seen before.

In 2015, the government embarked on an environmental plan to improve water quality in its highly populated areas. As a result, pork production shifted to northern and southwestern provinces, away from the urban centers where demand is typically the highest.

Slaughter facilities haven't followed farms' migration, and because Chinese consumers prefer fresh pork, live hogs travel long distances from the farm to the processor.

There are 18 official cases of African swine fever (ASF) in China, said Chenjun Pan, a Hong Kong-based animal protein analyst at RaboResearch's Food and Agribusiness group, at the DTN Ag Summit.

"But this number is understated," she said. "I'm sure there will be much more cases in China, but they are not reported or disclosed."

As part of its efforts to keep the disease from spreading, the Chinese government has shut down shipments of live hogs and meat across provincial borders.

The result is a supply and demand imbalance that's severely depressing pork prices in northern China, which typically consumes less pork, but now has increased production and an abundance of frozen pork. In southern China, when annual per capita consumption is nearly double that of northern China, supplies are tight and prices are nearly double what they are up north.

"Such big price differences are unprecedented," Pan said.

The impact on the country's pork production and import demand depends on how quickly the government can contain the outbreak and lift transportation restrictions.

If the restrictions are lifted before peak consumption season, which Pan said begins in January, the nation's pork production could drop between 2% and 4%. The country's current top import suppliers -- the European Union, Canada and Brazil -- should be able to meet import demand, although Pan said China could still turn to the U.S. for variety meats.

If restrictions remain in place longer, production could drop 6% to 8%. "Under this scenario, a lot of small farms will exit because they can't sustain their business," she said. Frozen supplies will help blunt the impact on consumer prices in the first half of the year, but prices will rise as those stockpiles dwindle.

Pan said China will need to expand its list of suppliers under this scenario. That could mean more imports from the U.S., but much depends on the status of trade talks and the tariff level that's in place. China currently imposes a 62% tariff on U.S. pork imports.

If it takes most of 2019 to control the ASF outbreak, Chinese pork production could fall by 10% to 15%, a result of sow liquidation in the breeding herd. Some liquidation is already happening, she said, but it's mostly on small farms. Once farmers begin to sell off larger breeding herds, pork production will take a more substantial hit.

"If the supply gap falls by 4 million to 6 million (metric) tons, there is no country that can meet China's demand, and China has to significantly increase pork imports from the U.S.," she said.

There is another wildcard: Europe accounts for 70% of China's pork imports, but it has also had issues with African swine fever. If there's a new case, China could ban imports from the bloc, she said.

"China will also increase imports of all other meats" if the ASF outbreak stretches well into next year, Pan said.

Poultry is the most common substitute for pork, but domestic supplies are tight due to issues with the breeding flock and efforts to prevent avian influenza. Imports will be an important part of meeting demand.

"I think there's quite a high possibility that China could reopen to U.S. poultry," she said, adding that much depends on trade discussions. U.S. poultry imports ground to a halt after the 2015 avian influenza outbreak.

Pan said Chinese consumers don't typically substitute beef for pork, but there's been such a large drop in pork consumption that it is starting to drive up beef prices. While there's plenty of potential for increased beef imports, high prices in comparison to other proteins will limit demand.

"ASF will likely last for more than a year, and I think will be a long-term battle for China," she said.

Katie Dehlinger can be reached at Katie.Dehlinger@dtn.com

Follow Katie on Twitter @KatieD_DTN

(BAS/SK)


blog iconDTN Blogs & Forums
DTN Market Matters Blog
Editorial Staff
Friday, December 7, 2018 2:55PM CST
Friday, November 30, 2018 9:59AM CST
Monday, November 26, 2018 11:12AM CST
Technically Speaking
Editorial Staff
Monday, November 26, 2018 10:39AM CST
Monday, November 19, 2018 10:39AM CST
Monday, November 12, 2018 9:14AM CST
Fundamentally Speaking
Joel Karlin
DTN Contributing Analyst
Friday, December 7, 2018 7:08AM CST
Wednesday, December 5, 2018 10:10AM CST
Tuesday, December 4, 2018 10:28AM CST
DTN Ag Policy Blog
Chris Clayton
DTN Ag Policy Editor
Friday, December 7, 2018 6:10AM CST
Thursday, December 6, 2018 8:45AM CST
Tuesday, December 4, 2018 6:13AM CST
Minding Ag's Business
Katie Behlinger
Farm Business Editor
Thursday, October 18, 2018 3:08PM CST
Thursday, October 11, 2018 10:05AM CST
Monday, October 1, 2018 9:34AM CST
DTN Ag Weather Forum
Bryce Anderson
DTN Ag Meteorologist and DTN Analyst
Thursday, December 6, 2018 2:43PM CST
Tuesday, December 4, 2018 2:42PM CST
Monday, December 3, 2018 10:36AM CST
DTN Ethanol Blog
Editorial Staff
Thursday, December 6, 2018 12:55PM CST
Monday, December 3, 2018 11:31AM CST
Friday, November 30, 2018 1:23PM CST
DTN Production Blog
Pam Smith
Crops Technology Editor
Friday, November 16, 2018 4:00PM CST
Thursday, November 1, 2018 6:46PM CST
Monday, October 8, 2018 7:04PM CST
Harrington's Sort & Cull
John Harrington
DTN Livestock Analyst
Friday, December 7, 2018 4:51PM CST
Thursday, November 29, 2018 5:04PM CST
Monday, November 26, 2018 9:38AM CST
South America Calling
Editorial Staff
Tuesday, November 27, 2018 2:39PM CST
Tuesday, November 20, 2018 7:12AM CST
Friday, November 16, 2018 4:22PM CST
An Urban’s Rural View
Urban Lehner
Editor Emeritus
Monday, December 3, 2018 11:32AM CST
Monday, November 19, 2018 5:21PM CST
Friday, November 9, 2018 5:27PM CST
Machinery Chatter
Dan Miller
Progressive Farmer Senior Editor
Tuesday, November 20, 2018 11:58AM CST
Thursday, October 18, 2018 10:53AM CST
Friday, October 5, 2018 10:16AM CST
Canadian Markets
Cliff Jamieson
Canadian Grains Analyst
Friday, December 7, 2018 3:58PM CST
Thursday, December 6, 2018 3:05PM CST
Wednesday, December 5, 2018 3:20PM CST
Editor’s Notebook
Greg D. Horstmeier
DTN Editor-in-Chief
Monday, November 26, 2018 9:13PM CST
Friday, November 2, 2018 5:31PM CST
Friday, August 24, 2018 5:53PM CST
Copyright DTN. All rights reserved. Disclaimer.
Powered By DTN