Pork Expectations for China

OMAHA (DTN) -- While the U.S. pork industry sits on a record hog inventory, prices are being buoyed by expectations China will be turning more heavily to international markets for pork in the very near future.

U.S. pork producers had a record hog and pig inventory of 75.5 million head on June 1, up 3.9% from a year ago, according to USDA's Quarterly Hogs and Pigs report released Thursday. The market herd was at 69.1 million head, up 3.9% from a year ago, and is also the highest since USDA began estimating the market-hog inventory in 1964.

The pork market, though, has been buoyed partially on expectations that China will need to buy significantly more pork from exporters. As of June 20, China has 165,000 metric tons on the books to buy. Exports to China are rising in pork even with a 62% tariff.

Despite the higher U.S. inventory, hog prices have gone from 52 cents a pound in March up to 82 cents before settling down closer to 75 cents a pound now. Pork demand has remained strong with both domestic sales and exports.

"Given the demand situation, prices are relatively strong," said Lee Schulz, associate professor of agricultural economics at Iowa State University.

The pork industry doesn't need any further disruptions to demand. While African swine fever is a hog disease and does not affect the food safety of pork, any finding of ASF in the U.S. would have devastating market impacts, said Scott Brown, an Extension economist at the University of Missouri.

"We don't need any hiccups on the demand side, as best we can help, especially the domestic demand, if we want to keep prices at reasonable levels," Brown said.

Higher prices have come from greater expectations for even more sales to China, which has lost millions of hogs to ASF, many of which were hogs slaughtered early.

The economists said the reporting of hog losses out of China is uncertain and anecdotal, which makes it difficult to forecast how China will move going forward. For now, China has been able to store frozen pork.

"That has built up some large cold-storage stocks," said Steve Meyer of Kerns and Associates. "It's also been a surprise the past couple of months the cold-storage capabilities of China seem to be larger than what anybody really thought they were."

Meyer said the long-term expectations for more international demand from China were not predicted to kick in until the second half of 2019, which begins Monday, July 1. He also noted that most information coming out of China remains anecdotal.

China, though, also banned all meat from Canada this week. China may also struggle to import pork from Vietnam, which also now is being ravaged by ASF.

The actual flow of pork exports going forward could change completely, said Dale Durchholz, principal ag Grain Cycles.

"With the whole mix of things going on and political overtones, where do they source pork from, if and when they really start stepping up imports in the next six to eight months?" Durchholz said.

"We could see the whole flow of pork in the world change, not just because of ASF, but also the political repercussions the Chinese have both here in the U.S. and Canada and some others as well."

Brown added that he is paying attention to what happens to overall pork consumption in China as the outbreak continues.

"So I worry about the risk of where consumption falls as far as this ASF outbreak," Brown said.

The economists were on a quarterly call hosted by the Pork Checkoff following the release of USDA's Quarterly Hogs and Pigs report Thursday afternoon.

For more details on USDA's Quarterly Hogs and Pigs report, visit: https://www.dtnpf.com/….

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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