U.S. Pork Exports to China
The U.S. pork export program has always been a viable demand source for the U.S. hog complex. Mexico, Japan, Korea, Hong Kong and Canada have been consistently reliable import/export markets for U.S. pork. From 2015 until mid-2019, mainland China was importing a steady volume of U.S. pork. Since the summer of 2019, China has been aggressively importing pork from the U.S. to help offset high mortality rates resulting from African swine fever (ASF).
China has the world’s largest hog herd, and pork is a staple component of the Chinese diet, making it a critical commodity to the Chinese economy. The price of pork represents 3% of China’s consumer price inflation (CPI) index. Meaning that the price of pork in China is so influential to the Chinese economy that price rises or decreases can influence broader monetary policy decisions by the Chinese central bank.
Prior to 2015, mainland China was an important export market for the U.S. pork industry. The country’s hog business was fragmented and lacked a level of biosecurity that made the herd prone to disease. These various diseases had a history of spreading rapidly throughout the country and resulted in supply shocks, which caused the prices of pork to spike. One incident occurred prior to the 2008 Summer Olympic Games in Beijing and another was in 2011when Porcine Reproductive and Respiratory Syndrome (PRRS) inflicted major mortality rates on the domestic hog herd. From 2005 to 2015, mainland China averaged 7% of the total annual U.S. pork export business. From 2011-2012, China averaged 13% of the monthly U.S. exports, with volume spiking to 23%.
In 2015, the Chinese Central government’s five-year plan contained a directive to create a modern, westernized and biosecure domestic hog supply chain. The objective was to help the country become increasingly self- sufficient with regard to its pork demand. To help achieve this goal, the Chinese implemented a ban on pork imports containing traces of the feed additive and finishing enhancer ractopamine, also known as Paylean. Ractopamine was a popular hog-finishing agent in the U.S., and the Chinese ban was considered controversial because it was viewed as a politically driven protectionist policy rather than science based. Since other countries with more stringent food safety standards such as Japan and Korea allowed pork imports containing ractopamine, the U.S. tried fighting the Chinese ban.
During this time, U.S. pork exports to mainland China settled into an annual trend of 7 percent of total U.S. export volume.
ASF revives U.S. trade
In 2018, the Chinese domestic hog became afflicted with African swine fever (ASF). With no vaccine and a near 100 percent mortality rate, domestic Chinese hog supplies have plummeted. Some estimates have domestic hog supplies at 30-35 percent below the peak supply level of 2017 and back at 1996 levels. One consequence of ASF is that domestic pork prices have spiked, causing the country to aggressively import pork.
In 2018, China implemented a 25 percent import tariff on U.S. pork and began buying pork from countries such as Brazil and the EU. In 2019, the Chinese government opportunistically relaxed the 25 percent import tariff on U.S. pork to help ensure supplies and to combat soaring domestic pork prices. This was particularly evident as the country aggressively increased pork imports ahead of the Lunar New Year celebration that lasts for two weeks in mid-January. Since the Phase 1 Trade Agreement was signed on Jan. 15, China has been the largest buyer of U.S. pork. The recent sales pace has slowed as the coronavirus has slowed export logistics at China’s ports and forced the delay of containers.
During this time, U.S. exports to China regained momentum and helped deliver price support to the U.S. pork and hog markets. From June 2019-December 2020, U.S. pork exports to China averaged 20 percent of the monthly export total. This figure spiked to 33% in December, which is the largest single monthly export total and percentage of sales on record. We believe that the USDA’s figures underestimate the actual export business to China because the numbers represent pork primals, which does not account for the volume of whole hog carcasses.
What this means for the U.S. farmer
The intractable presence of ASF in China has created domestic supply shocks and price spikes which have created opportunities for the U.S. pork export program. China’s desperate need to ensure stable pork supplies to help influence domestic price stability and slow inflation has forced the country to aggressively import record volumes of U.S. pork. As the U.S. hog herd continues to expand at a linear rate, we believe the Chinese export business can create enhanced hog demand. With increased domestic packer and export demand for hogs and hog carcasses, we have little reason to believe that a negative catalyst exists that would suggest the expansion pace of the domestic hog herd will slow. We view this scenario as being a positive variable for domestic corn and soybean meal demand, which can help support both regional and local basis.
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