US and other world pork exporters could see extra product demand as China culls nearly 100 million hogs and another 10 million sows over the last 18 months. For US cattle and beef producers, higher pork exports would remove some domestic competition.
A new Rabobank report estimates that the Chinese culling is equivalent to wiping out the entire North American hog industry.
“For 2015, Rabobank expects China’s pork production to decline by 6.5%, the third-largest decline in production in the last 40 years,” said Rabobank Animal Protein Analyst William Sawyer in a release on the PR Newswire. “This will be supported by a 600,000-tonne increase in imports – primarily from the EU, the U.S. and Canada – in the second half of 2015.”
The demand from China to fill the pork production void is likely to continue into 2016, Rabobank said.
ONE OF THE LARGEST CULLS IN HISTORY
The cull, which appears to have been because of economic conditions, took place over the last 18 months, but the ramifications are just now being felt globally, Rabobank said. Pork production this year was forecast to plummet by 3.7 million tonnes.
But the cull could not have happened at a more opportune time, not only for China but for those production areas most likely to benefit – those with trade links already established. The EU, US and Canada all have enough volume available and are competitive in the Chinese market.
“The global pork sector is in the midst of a supply glut after many regions have recovered from the Porcine Epidemic Diarrhea virus outbreak of 2014, and a number of trade bans have depressed pork prices and producer margins,” Sawyer said.
According to the report, a 1.9-million-tonne Chinese supply gap implies a 600,000-tonne increase in pork and variety meat imports above the 1.3 million tonnes imported in 2014.
This export opportunity is very attractive to a sector that has been under pressure in recent times, Rabobank said.
“Capitalizing on the opportunity will require processors and traders who have the right product at a competitive price; who can deliver in the coming months; and who can readily mobilize their supply chain,” the bank said.
THE RACTOPAMINE ANGLE
But of the trading partners who can answer the call for increased pork imports by China, the EU stands paramount, Rabobank said. For the US market, supply that is free of Ractopamine, a growth-promoting hormone banned by China, will be the limiting factor.
Only about 15 plants, representing about half of the US’ pork facilities, are eligible to export to China after traces of Ractopamine were discovered in shipments last year.
And only about 20% of US pork is Ractopamine free, with much of that coming from Chinese-owned Smithfield Foods.
CASH FED CATTLE TRADE LOWER
Cash cattle markets traded lower Wednesday with cattle changing hands at $145 per cwt on a live basis and at $232 to $234 on a dressed basis. Both were about $2 to $4 lower than last week.
However, many sellers were holding to their asking prices of $152 live and $240 dressed.
Cattle traded lightly last week at $148 to $152 live, steady to down $2, and at $240 dressed, up $2 to $4.
The USDA reported higher boxed beef prices Wednesday with choice up $1.70 per cwt at $246.78 and select up $0.19 at $236.44. However, these were down significantly from the midmorning quotes. Volume was very active with 134 loads of fabricated cuts sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $216.72 per cwt, up $0.18. This compares with the Aug settlement Wednesday of $213.80, down $0.75.