The losses in China’s pig herd are very difficult to estimate – estimated losses range from 20% to 70%. Data from the Chinese Ministry of Agriculture and Rural Affairs (MARA) has the sow herd down by 22% in the year to April – this is one of the most optimistic estimates we have seen. However, hog and pork prices struggled in April and May, after a brief surge in March, raising significant questions about the size of the herd. Two obvious explanations for the stagnant price performance include the panicked release of frozen pork from storage before the mandatory authority inspections start on 1 July, and panicked hog liquidation in some newly disease-affected regions in the south. In our view, however, the more likely explanation, albeit one that can be easily overlooked, is declining consumption.
We believe pork consumption in China has been weak due to concerns held by consumers and processors over food safety. According to MARA, hog slaughter by large-scale slaughterhouses in the first four months of 2019 was down by 8% YOY. Given the share of large-scale slaughterhouses in total production (and assuming some increase in their market share as small slaughter houses have shut down since the first reported ASF case), total slaughter in China should have dropped by about 10% to15% in the first four months of the year. As pork prices have been flat, suggesting supply and demand are relatively well-balanced at the moment, we conclude consumption is down on average by 10% to 15%.
June 2019/ Rabobank/ Holland.