According to USDA, by the end of 2019, the total swine inventory will be down 13 percent to 374 million head. Pork production will decrease by 5 percent to 51.4 million metric tons (MT), with the reduced supply only slightly offset by weakened demand. To cover the domestic supply gap, China will increase pork imports by 33 percent to 2 million MT. While U.S. pork products still face retaliatory Chinese tariffs of up to 62 and process verification requirements, if these are removed, U.S. producers could significantly increase exports to China.
Production: 2019 ending inventory down by 13 percent to 374 million head
ASF’s profound impact on production is evident in the projected 2019 ending inventory. The swine herd will likely be reduced by 13 percent in 2019, to 374 million head. Due to lower inventory heading into 2019 and a sharp decrease in the sow population, the overall hog supply will be down 8 percent to 1.0 billion head. While China will slaughter less pigs in 2019 due to the decreased supply, it will only be a 5-percent reduction. As present, a significant restocking or expansion is not foreseen until the latter half of 2019, and most likely late 2019 at the earliest.
This overall decrease will magnify the regional situations that led to sharp price divergences in late 2018, early 2019. The main reason for these stark regional differences are the movement restrictions put in place by China’s local and central governments. Restrictions on the movement of pigs and pork across provincial borders have caused a decline in live swine prices where there is a net surplus of hogs in the province, and a jump in prices in provinces where the demand outstrips the supply. It is estimated that 14 percent of all hogs in China (roughly 100 million head) cross a provincial border before they are slaughtered.
Pork production will decrease by 2.7 million metric tons, opening door for increased imports China pork production will decrease to 51.4 million MT in 2019, representing a 5-percent decrease. Similar to the imbalance of live hogs by region, pork supply and demand will also vary regionally. However, recent changes by the Chinese government to encourage shipment of chilled and frozen pork instead of live swine, should allow the market to rebalance across regions. Two factors that will impact the speed of this transition will be the degree to which Chinese consumers are willing to eat chilled and frozen pork, and the speed at which the industry can add cold-chain capacity (both in terms of storage and transportation). Another factor that will stabilize pork production in China in 2019 is the increased average slaughter weight. As discussed above, lack of access to slaughtering facilities and low prices have caused some farmers to raise their animals to heavier slaughter weights. So while the overall number of animals available for slaughter in 2019 is decreased by 6 percent, the increased carcass weights will somewhat offset that loss.
Consumption of pork will fall to 53.2 million MT, mostly due to ASF-related issues, representing a 4-percent year-on-year decrease. Food safety scares are rampant in China and many local contacts report that they have avoided eating pork due to food safety concerns stemming from ASF, despite assurances from the central government that eating pork is safe. In the latter half of 2018, a number of businesses and schools made announcements to employees and parents that pork would no longer be served in their cafeterias, due to concerns about ASF. Demand has already increased for alternative proteins to replace an anticipated 2 MMT drop in pork consumption. Poultry prices have jumped in response to increased demand for a low-priced protein alternative.
Monday March 11, 2019/ GAIN-USDA/ United States.