China’s appetite for pork is the driving force in the global market, but the high prices Chinese hog farmers and importers are earning will not last forever.
Brett Stuart, a founding partner at Colorado-based Global AgriTrends, reviewed the global market trends shaping demand for pork and other animal proteins during a June 9 presentation at the World Pork Expo in Des Moines, Iowa.
The biggest story in pork right now is China. Consumers are paying historically high prices for pork, and producers, earning $160 in profit a head, are taking advantage of cheap and plentiful feed to raise as many pigs as possible. Stuart said the biggest question is how long this trend will last.
A red hot market
Stuart said what’s going on in China is “incredible.” Producers are earning record profits, consumers are paying record prices, and over the summer demand is projected to grow even more.
An estimated 2 million sows were slaughtered in 2015 to meet demand for pork, but the supply is still limited according to the high prices consumers are paying. Stuart said there is no way to determine the inventory of pigs in China, but it is possible to estimate consumption.
Currently, the Chinese are consuming more than 6,000 metric tons of pork every hour and are projected to eat as much as 53.5 million metric tons of pork in 2016. China is looking to import what it can to match demand. Stuart projects about 1.3 million metric tons of imports in 2016.
“Half the pigs in the world live in China, so when you have an inventory shift in a market that big it drastically changes the global market,” Stuart said.
United States pork producers are constrained in what they can ship to China due to import restrictions barring U.S. pigs fed ractopamine, a feed additive that promotes leanness, from entering the market. Stuart said about 25 to 30 percent of U.S. hogs are suitable for export to China.
The European Union, which totally bans ractopamine use, is coping with an excess of pork due to Russia’s food import ban, and it is exporting as much as it can to China. Stuart said European producers reported they are totally sold out due to Chinese demand. Canada, which allows ractopamine use, is growing its exports to China, too. Stuart said Canadian exports to China have risen from less than 5,000 metric tons in January 2015 to more than 20,000 metric tons in April 2016.
How Chinese pork producers will adjust
High demand for pork and a low price of corn in the coming years point to Chinese pork producers expanding as quickly as possible. Stuart said the Chinese government’s environmental restrictions may throttle growth somewhat, but with profits as high as they are and demand not stopping anytime soon it’s clear pork producers will find a way forward.
A major factor driving this growth is the low price of corn in China. The Chinese government discovered it had a 250 million ton surplus of corn and a large crop about to be harvested. Because of this, in March, the government announced prices would drop 22 percent, to $7 a bushel from $9 a bushel. It will likely take five years to work through the surplus.
There are between 70 million and 80 million hog farmers, Stuart said. Most operations are small and only active when the market is profitable. Times are good now, but if expansion occurs fast enough — and pork farmers put enough pigs on the market to meet demand — prices will drop and the same farmers will feel the pinch.
Bull and bear trends for the Chinese, international pork markets
Stuart said times are good for pork farmers and importers in China, but the trend will not last forever. When comparing prices paid for hogs in the U.S., E.U. and China, the Chinese market experienced a boom and bust cycle since 2009. In 2010, the global price paid for a hog carcass was almost the same. Between July 2010, the Chinese price took off — peaking in July 2011 — but the price sagged back to near equivalent with the U.S. and E.U. by the middle of 2014. Once again, hog prices have taken off in China, but Stuart projects the market will fall again.
One indicator displaying the strength of the Chinese pork market is demand before and after the Chinese New Year. Typically, the price falls sharply — by 25 to 30 percent — after the January and February holiday season, but in 2016, prices are staying strong. Stuart said its likely prices will keep surging through 2016, and observers should monitor demand before and after the 2017 holiday closely.
If production expands enough, possibly by the middle of 2017, it will send prices downward and have international repercussions, especially for countries becoming dependent on the Chinese market like E.U. member nations and Canada. Stuart said there’s a risk of over production in animal agriculture, and producers should ask themselves why that’s happening.
“We’re in a spot where the whole world is expanding production — China’s expanding, Europe is expanding, [the U.S.] is expanding — that should give us a little bit of a red flag,” Stuart said. “Why are we expanding? Are we expanding because Americans want more pork, and we don’t have enough? I haven’t gotten anyone to agree with that statement yet.
“We’re expanding because there are new plants, and we need to ramp up production to fill these plants. That may not be the best reason to expand.”
Stuart said the U.S. dairy industry recently experienced a similar rush to expand production in order to fill new plants to meet high global demand. Production grew, demand fell and the industry is now “in shambles,” he said, due to putting the perceived need for more animals ahead of the consumer’s actual demand.
Although there are some hard times possibly ahead, Stuart concluded that in the long run animal agriculture, and the pork industry, will shine due to the growing global population and rising middle class.