February 16, 2021
Realistically assessing China's rapid swine sector recovery
Hog herds, pork production can't fully recover by 2022 but pre-ASF levels of swine meat output will be achieved at least one year ahead of previous estimates.
By Eric J. Brooks
An eFeedLink Hot Topic

The worst seems to be over for China's hog sector: From 54.04 million tonnes in 2018, 2020 pork output fell 29.7% to a USDA estimated 38 million tonnes. That's down 10.2% on 2019's 42.5 million tonnes and China's lowest pork output volume since 1997's 35.93 million tonnes.
But 38 million tonnes was far better than the 32 to 36 million tonnes forecast by many analysts just several months earlier.
China's policy response enabled swine meat production to undergo a sharp recovery. This is due to well coordinated, subsidized construction of a nationwide biocontainment infrastructure. It encompasses everything from bio-containment hog pens to mandatory use of approved, standardized disinfection compounds. The most visible change is newly constructed disinfection stations for all personnel, animals, and motor vehicles entering or departing from swine rearing facilities, spanning a land area comparable to that of America's Midwest.
With African swine fever (ASF) contained, free-market incentives accelerated a profit-driven recovery: Pork, hog, sow, and piglet prices have stayed near record levels for over a year and will persist for at least another year.
From the late 2000s through 2018, live hogs fluctuated in the RMB10/kg (US$1.55/kg) to RMB20/kg (US$3.10/kg) band. Hogs traded in the RMB30/kg (US$4.65/kg) to RMB41/kg (US$6.34/kg) range starting in mid-2019, throughout 2020, and are continuing to do so early this year.
From their usual RMB25/kg(US$3.86/kg) to RMB50/kg (US$7.73/kg) range, piglets soared to a record RMB117/kg (US$18.08/kg). Even during December 2020's cyclical pre-Chinese New Year piglet price downturn, they sold for RMB94/kg (US$14.53/kg).
Protected by herd expansion subsidies and monetary compensation for ASF losses, historically high returns are driving an exceptionally rapid recovery in sow numbers, hog inventories, and ultimately, pork production.
Despite losing an entire generation of breeder sows, a multi-year 25% to 45% annual rebound in hog numbers is underway. Even so, government officials appear to be overly optimistic.

Inventories bottomed out at an eFeedLink estimated 167 million head in early 2020 and thereafter expanded to over 200 million head by late January. They are on track to close out 2021 above 290 million head.
Exceeding our forecasts, China's agriculture ministry stated Q4 2020 sow and live hog inventories were "over 90% of normal levels" and "hog production in China is expected to fully recover in the first half of 2021" This would imply that pre-ASF pork output volumes could be achieved in 2022. But total hog inventories cannot exceed 90% of "normal levels" if sow inventories only reached 90% of pre-crisis levels a few months ago – and we don't even see evidence for the latter.
eFeedLink's January Livestock Tracker estimates that sow herds closed 2020 around 33 million head. That is only 80% of the pre-crisis herd, which exceeded 41 million head. The Livestock Tracker states that "Despite a rising sow population, piglet production was constrained by low fertility, as these sows are commercial hogs unsuitable for breeding. This hampered piglet replenishment." Giving birth to 30% to 50% fewer piglets per litter as breeder sows, poor sow fertility makes Beijing's 2021 full hog inventory recovery and a full pork production recovery by 2022 impossible.
In mid-2020 when aggressive sow herd restocking began, low fertility commercial hogs made up 70% of sows. Entering January 2021, 50% of China's sows are still commercial non-breeders.
It is the low productivity of commercial hogs used as breeders that make our piglet production, live hog inventories, and pork production recovery time frame more conservative. It will take until Q2 for the proportion of non-breeder sows to fall below 20%. While it is aggressively importing grandparent stock from western suppliers, China will not have a sow herd made up of more than 90% dedicated breeders until H2 2021.
If sow inventories are only 80% of the pre-crisis sow herd as eFeedLink estimates and half are commercial hogs, they will only be producing 64% as many piglets as the pre-ASF sow herd did.
Moreover, the USDA forecasts a healthy 2021 production increase of 14.5% to 43.5 million tonnes but that's only 80% of pre-ASF pork production: How could China produce so little pork in 2021 if both live hog and sow inventories already exceed 90% of pre-crisis levels in late 2020? If government inventory projections were true, 2021's projected hog output would be 5 million tonnes higher and pork imports would fall to zero – but this year's pork imports are projected to total 4.6 million tonnes.
Finally, the free market giveth and the free market taketh away: As the gap between supply and demand closes, so will swine rearing returns. In Q2 2022, live hogs will fall below the RMB30/kg to RMB40/kg price band. From their 2020 average price exceeding RMB100/kg, piglets will fall below RMB50/kg.
Falling swine prices are coinciding with steeply rising feed costs. As the first full post-ASF hog market cycle comes to an end, profit margins will narrow. That will boost China's pork Falling pork prices will help boost consumption to pre-crisis levels but greatly reduce the incentive to expand herds and pork production. That will push back the date when China's hog inventories and pork production equal pre-ASF outbreak levels to sometime between H2 2023 and H1 2024.
In nations such as Vietnam and Philippines, ASF is making pork output fall for a third year. Reversing China's pork production decline in less than two years and getting back to business-as-usual one to two years ahead of time is a real accomplishment. Even so, a full pork production recovery will require until at least 2023 and cannot possibly take place this year.

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