China pork output to continue rising

China's pork production will continue rising in 2010 to more than 50 million tonnes as higher pork production and lower prices will reduce pork imports in 2009 by more than half and further declines in import demand are expected next year, according to the Foreign Agricultural Service-Beijing of the US Department of Agriculture.

China's 2009 beef production is expected to slide six percent to 5.8 million tonnes and continue falling in 2010 due to low returns for Chinese cattle producers. Continued double-digit gains in China's breeding cow imports are expected in 2010, fuelled by a forecast rise in demand for Chinese milk products and recovering Chinese production.

FAS Beijing forecasts China's total meat production in 2010 will reach 78.6 million tonnes, a four percent gain from 2009. Beef and mutton production are expected to decline, while pork production is expected to grow steadily. Meanwhile, continued modest growth is expected for poultry production. The China National Statistics Bureau and China Meat Association Post forecasts China's beef production in 2010 will fall five percent to below 5.5 million tonnes, following a six percent decline in 2009, as continued low beef producer returns dampen beef cow production. Post forecasts China's 2010 beef imports will rise 20 percent to 18,000 tonnes, encouraged by continued high prices in the Chinese beef market. Significantly higher quantities of imported beef will continue to move through gray channels. Meanwhile, further declines in Chinese beef exports are expected, falling to 25,000 tonnes in 2010. China suspended imports of live swine and swine products from Mexico, the United States, and Alberta Province in Canada in late April 2009 due to an outbreak of human AH1N1 flu in Mexico and North America. Although China subsequently lifted its ban on US cooked pork, porcine casings and gelatin, US exports have not resumed due to China's policy to require pre-export disinfection of the exterior of shipping containers containing US pork products. Post forecasts China's pork production in 2010 will increase nearly four percent to 50.3 million tonnes from an estimated 48.5 million tonnes in the previous year, fuelled by government sow subsidies and improved PRRS control. An oversupply of hogs in 2009 pushed swine and pork prices down considerably, with the benchmark average retail price in 36 cities falling to a three-year low in June of just over 10 yuan per kilogramme. The price decline spurred government purchases of 120,000 tonnes in mid-June under a market intervention scheme, as the pork to corn price ratio fell below the intervention trigger level of 5.5. Prices have since rebounded strongly, up 10 percent in late August compared to early June. Dampened by abundant local supplies,

China's pork imports are expected to continue falling to an estimated 120,000 tonnes in 2010. Meanwhile, Chinese pork exports are forecast to increase four percent to 240,000 tonnes.

Post expects China's beef consumption will continue sliding in 2010 to below 5.5 million tonnes as high prices discourage sales. Through 2009, average nationwide wholesale beef continued to rise from record levels in 2008, exceeding US$3.50 per kilogram in August, up 6 percent from August 2008. This compares to US$2.08/kg for pork (down 21 percent from August 2008) and $1.34/kg for broiler meat (down 5 percent).

Regular short plates sell best for hot pot among all consumers because of comparatively cheap prices. Bone-in and boneless short ribs and rib fingers are popular at Korean and Japanese restaurants in China. Rib-eye rolls, boneless strip lions, short lions, and tenderloins are mainly consumed at high-end hotels and restaurants. Chinese consumers prefer grain-fed beef because of the tenderness with marble lines. High-end hotels and restaurants like to use imported beef and require specific cuts, grades, and animal age, in order to guarantee the quality for specific menus.

China's live cattle imports will surge 17 percent in 2010 to 21,000 head as China continues to rebuild its dairy industry following the nationwide melamine crisis. With a significant number of Chinese dairy cows slaughtered in early 2009 due to slack milk demand, demand will be fuelled by a need for herd replacement as well as improved genetics. The government's subsidy of RMB500 (US$73) per cow for MOA (Ministry of Agriculture) certified high-quality dairy heifers will further encourage imports.

While a tiny share of total consumption, China's beef imports in 2010 are forecast to continue rising to 18,000 tonnes, due mainly to lower domestic production. Imports from Australia have been particularly strong in 2009, with imports through July nearly doubling to 3,074 tonnes. Sales have been fuelled by depreciation in the value of the Australian currency against the yuan that began in late 2008 and continued through mid-2009. Traders report continued robust sales of beef imports through gray channels in 2009. On the other hand, Post forecasts China's live cattle exports in 2010 to decline seven percent to 28,000 head, which follows a 9 percent decline in 2009. Beef exports in 2010 are forecast to decline 24 percent to 25,000 tonnes, following an estimated 43 percent decrease in the previous year. Lower demand for Chinese beef imports in 2008 and 2009 is due primarily to the overall global financial crisis and rising Chinese beef prices. Food safety has also played a role as key markets such as Japan and South Korea have tightened inspection, quarantine, and audits of Chinese processing plants. Meanwhile AQSIQ suspended issuance of export health certificates for several weeks in 2009 and directed exporting plants to re-evaluate their food safety systems and make improvements where needed.

Although China's swine and pork prices experienced continued significant declines in 2009, Post believes Chinese pork production in 2010 will continue rising to 50.3 million tonnes, up four percent from 2009. Rising pork production has been boosted by government subsidies for sows, improved PRRS control, and higher productivity from a rising number of Chinese hog producers with herds of 50 head or more. Additionally, a market intervention scheme introduced this year to shore up prices through state reserve purchases has successfully boosted prices and farmer confidence in the profitability of hog farming, further improving prospects for continued production gains in 2010.

China's growth in larger-sized hog farms and decline in backyard operations are also a factor in higher production. According to the Ministry of Agriculture, farms of 50 hogs or more accounted for 56 percent of total slaughter at the end of 2008, up eight percent from the previous year. These larger farms are more likely to practice disease control measures and operate under contracts with slaughter facilities, making returns more predictable. Post expects further gains in larger farms as a share of total production into 2010. Government subsidies to increase China's sow herd, introduced in the wake of the 2007 blue ear disease outbreak, have also played a significant role in increased production. However, it is uncertain these will continue into 2010 given the full recovery in production since the 2007 outbreak. The subsidy grew from RMB50 (US$7.32) per head to RMB100 (US$14.64) before expiring in most production regions in mid-2009. Separately, a sow insurance subsidy of RMB60 (US$8.80) per head will continue into 2010. China's sow stock in 2009 jumped six percent to a record 50.1 million head following a seven percent increase in the previous year. Meanwhile, China's pig crop production in 2009 is forecast at 667.7 million head, up five percent from 2008, following a seven percent increase in 2008. The rapid increase in China's pig herd in 2008 and 2009 pushed average hog, piglet, and pork prices down 35, 47, and 28 percent respectively in the first six months in 2009 from the same period of the previous year. According to the Ministry of Agriculture, the percentage of swine farmers operating at a loss increased from 5.8 percent in January to 45.8 percent in May 2009. Some sows were slaughtered in response to oversupplies and low prices. The average hog-grain ratio dropped below 5.5, the trigger point for state purchases under the new market intervention scheme. State frozen pork purchases for central reserves totalled 120,000 tonnes, well below the overall estimated state reserve capacity of 600,000 tonnes. This reserve policy combined with sow pattern adjustment has helped turn pork prices upwards since mid June. During July 27-August 2, 2009, the average wholesale pork price in major large-medium cities was RMB15.49 (US$2.27) per kilogram, up 10 percent from mid-June.

China's 2010 pork consumption is forecast to rise four percent to 50.2 MMT, following a three percent increase in 2009. Higher pork sales have been fuelled by sharply lower pork prices compared to 2008. Other factors supporting growing consumption include rising pork distribution through supermarkets, which have been facilitated by an improving cold chain. Meats sold in supermarkets are perceived as safer by many consumers and sales to middle and upper class consumers through these outlets are expected to continue rising. AH1N1 flu outbreaks briefly lowered Chinese pork consumption in many markets in April-May 2009, but following the WHO's decision to modify the name of the virus from "swine flu" to "novel AH1N1", pork consumption rebounded quickly.

US$1 = RMB6.83 (September 21)