China drops pork/soybeans tariff, hog losses accelerate – estimated at 70pc by year end
Simon Quilty, BEEF Central (Australia)
September 17, 2019
China late last week agreed to ‘grant limited exemptions’ on certain US agricultural goods that included US soybean and pork imports. In return President Trump said on Thursday he would delay increasing tariffs from 25pc to 30pc on $250 billion of Chinese goods until October 15, in what he called a ‘gesture of goodwill’ toward China.
The next US-China trade talks are to be held in early October and in preparation Chinese negotiators are looking to increase the purchase of US agricultural goods and increase the volume of imports. This was further confirmed on Friday by Beijing’s Xinhua New Agency who announced that ‘for meat and other agricultural products, the Tariff and Tax Commission of the State Council will levy tariffs on the above purchases and excluded them‘. Just 12 hours before this statement, Donald Trump tweeted ‘It is expected that China will be buying large amounts of our agricultural products!’
In response to these announcements significant volumes of US soybeans were purchased late last week by China with close to 600,000 to 1 million tonnes sold. On Friday, inquiries from Chinese pork importers seeking to book large pork volumes out to February next year were reported by market participants, as I understand most pork sellers held back from selling looking to the following week to digest the market news.
The US hog futures responded Friday for the second day in a row of opening up limit as the market is now coming to believe the China ASF story and China’s need for more pork which in turn is likely to see US pork exports continue to increase to China.
Key points in this paper
· China hog losses accelerate with the hog inventory looking like 70pc losses by year end based on inventory figures released by China’s Ministry of Agriculture last Friday for August at 38.7pc loss and 37.4pc loss for sows.
· China national hog prices stabilise at 28 RMB/kg which prior to last week’s US rally had seen China hogs at three times the value of US hogs
· Last week’s China August food inflation figures continued to rise at 10pc with pork being the biggest driver at 47pc higher
· China piglet prices are now double what they were at the start of this year
· China has approved more beef plants globally (289) compared to pork plants (246) and poultry plants (95) – Brazil being the latest contributor to this with 25 plants approved in the last few weeks. The emphasis on more global beef suppliers over other proteins should be noted.
· China’s Vice Premier Hu confirms a 10 million tonne shortfall this year in protein supply and acknowledged the ‘extreme severe’ pressure due to the lack of pork that will be felt in the last quarter of 2019 and the first half of 2020.
· Philippines ASF outbreak puts global producers on notice – nowhere is safe from ASF.
· Australian Agricultural Minister calls for an ASF round table discussion with industry as the threat looms with more and more Asian countries contract the disease.
China’s hog losses estimated to be 70pc by year end as meat inflation moves dramatically higher
The rate of of losses is increasing with now 70pc losses. China’s Ministry of Agriculture yesterday came out with the latest August hog inventory figures with an estimated 38.7pc loss now being recorded for the total hog inventory and 37.4pc for total inventory losses across China – the once estimated loss of 50pc by year’s end is now looking like a 70pc hog and a 60pc sow inventory losses – as the problem accelerates.
China’s hog prices in the last week have stabilised at close to 28 RMB/kg after 11 weeks of non stop rising and has placed hog values in China at close to three times the value of hogs in the US. This highlights the tightness in supply and the critical need for imports to try to stabilise domestic pricing.
China’s August food inflation came out at 10pc with meat prices being driven by domestic pork prices which climbed 47pc in August (from 27pc in July) – once again highlighting the critical shortage – pork makes up close to 30pc of the basket of goods which food inflation is measured in China.
The losses of not only the hog and sow inventory is not the only concern but also the pipeline of piglets has shrunken with piglet prices doubling since late last year which points to a long term pork supply problem due to an empty supply line. The lack of confidence in growing pigs is evident by the loss in inventory and the difficulty in replacing pigs.
Its interesting to note that anecdotally I am hearing that foreign investment in China in both hogs and the poultry sector has been mild or at best stagnant. Investment by Chinese national entrepreneurs has been a lot more significant as many see huge profit potential should bio-security procedures and the ability to keep ASF at bay. In other words, having the ability to grow hogs and have supply when no one else does at these inflated prices will result in significant profits if growers can manage the risk successfully.
China approves more meat plants globally ...
Chinese vice-premier Hu Chunhua speaks publicly on ASF losses and potential solutions ...
Philippines ASF outbreak puts global producers on notice – ‘no where is safe from ASF’ ...
Australian Agricultural Minister calls for an ASF round table discussion ...
As the Chinese proverb highlights ‘facts speak louder than words’ and with the disease now accelerating in terms of losses and the need for China to act is greater than ever before – the ongoing expansion of approved supply countries is good evidence of the how China is reacting to the real concern that Vice Premier Hu is referring to of a 10 million tonne deficit by the end of this year.
The ongoing spread of ASF throughout Asia is best highlighted by the recent outbreak in the Philippines and means the demands on global pork supply is getting greater and I think the Chinese government realise this and are looking to diversify its protein needs to chicken and beef. Beef seems to be a bigger priority if the larger number of approved plants globally is any indicator. This relentless march southwards of the disease in Asia has Australia’s bio-security and pork industry on high alert.
I have put together a ‘what if’ scenario below using China’s 70pc hog loss over 16 months (Aug 2018-Dec 2019) as a guide for estimating the total impact on all other Asian countries who have also contracted ASF.
Statista has put the global estimate of pigs at 770 million head which would mean that by mid next year its feasible that almost 50pc of the global pig population would be lost or 20pc of global protein (includes pork, beef, poultry and sheepmeat) due to African Swine Fever – this estimate is based on Asia’s losses only and does not account for Europe or any where else.
The decision by China last week to remove tariffs on ‘selected agriculture items’ such as pork and soybeans is a welcome step forward in the US/China Trade War and timely in the sense of increased pork supply in the US over the next 3-5 months – I feel China has carefully managed this outcome – but on the trade war surface it would seem that no-one controls anything, in particular President Trumps tweeting.
The most significant fact in this update is the estimated 70pc hog loss within China by year end which indicates that controlling the disease within China is proving to be challenging to say the least, and it begs the question...
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