November 22, 2019

 

US-China trade war makes it difficult for US swine producers to take advantage of US$5 billion market opportunity

 

The African swine fever (ASF) disease affecting China has created a US$5 billion market, but US swine producers cannot leverage on the opportunity because of the US-China trade war uncertainty, reported South China Morning Post.

 

According to the National Pork Board's Pork 2040 report, an agency sponsored by the US Department of Agriculture (USDA), swine sales are expected to grow three times more, reaching three million tonnes in 2022 – an annual US$5 billion opportunity that US swine producers could tap into.

The report also estimated imports by China to supplement the shortfall of meat supplies may hit 10% to 15% in 2020 and 2021.

 

Exports to China from the US have grown, with the second week of November recording 5,549 tonnes of pork exported to China, the biggest export volume in a month.

 

However, the tariffs from US-China trade war have led to uncertainties among US swine producers. Jacob Burks, representing the futures division at the Wedbush brokerage, New York said China swine purchases from the US would have been much more.

 

While trade talks between the two countries have been positive, Burks said this is up in the air, with nothing signed as of yet.

 

He added that it is definitely advisable for US swine producers to enter the largest swine market in the world with ASF creating a temporary opening for the US.

 

US exports to China reached 166,000 tonnes in 2017, which made up 13.6% of China's imports of the meat. After an up-to-72% import duty was implemented in 2018, exports fell to 86,000 tonnes.

 

Swine prices in China are increasing rapidly. According to official data from China, September recorded a 46.7% price increase year-on-year in August 2019. July reported a 27% increase.

Economists predict China's swine prices will go up two times by the end of 2019, and steadily increase early next year.

 

US swine producers' stock prices have shot up last year with bigger companies able to leverage on the swine supply shortfall and high prices – JBS shares were up three times more to US$15.68 between September to December 2018, and Tyson Foods reported doubled share prices to US$93 during the same period.

 

While countries like Canada, Spain and Germany are exporting swine to China, Norman Bessac, vice-president of international marketing, National Pork Board said supplies from the EU is limited, with the US and Brazil poised to be major swine suppliers to China in the future.

 

Before the spread of ASF, the China government capped imports of swine at 5% of the country's total consumption. But as supplies have continued to drop as the disease continues to spread, China has approved more countries and producers for imports.

The Pork 2040 report said US swine will still find its way into the China market, even with the political uncertainty between US and China affecting trade. However, trade volumes will drastically increase once a deal has been finalised.

The export opportunity to China has arrived at the right time as swine consumption has declined in the US.

On 20 November 2019, lean hog futures on the Chicago Mercantile Exchange were priced at US$60.23 cents per pound for December contract. For the July 2020 contract, prices were trading at 84.73 cents, possibly indicating a price hike for the coming year.

-      South China Morning Post