China’s swine fever woes fuel U.S. pork exports

A 15% jump in U.S. pork exports through the first 10 months of 2020, fueled by Chinese demand, is putting a holiday jingle in the pockets of Iowa hog farmers.

“We’re above $50 per head in value added to pork exports to each pig that farmers sell,” said Iowa Pork Producers Association President Mike Paustian of prices, which have bounced back since this summer when pandemic-related packing plant closures glutted the market with supply, pushing prices to a 15-year low.

“December futures in the April to August range had gotten as low as $45 per hundredweight and now we’re back up to $65 per hundredweight,” said the Walcott farmer. “That’s just on the good side of profitable.”

For January through October, U.S. pork exports totaled 2.46 million metric tons valued at $6.33 billion, a 16% increase over dollar volume in the first 10 months of 2019, according to the latest figures from the U.S. Meat Export Federation. For October alone, pork exports rose 8% to $641.1 million, solidifying the year’s record pace.

There’s no mystery about where the increase in overseas demand is coming from or why it’s happening. China, beset by the loss of half of its pork production due to rampant African Swine Fever (ASF), “is the 900-pound gorilla,” said Mr. Paustian.  U.S. pork exports to China/Hong Kong so far this year are running 86% above last year’s pace in volume (871,612 metric tons) and 104% higher in value, at just under $2 billion.

The disease also hobbled U.S. pork’s major European competitor.

“We’re exporting a lot because China needs the product,” explained Iowa State University agricultural economist Dermot Hayes. “China can’t buy from Germany because of ASF. We have some of the cheapest pork in the world.”

Domestic demand for pork, while steady and strong through the pandemic, is not growing much, so “exports is where it’s at,” said Mr. Paustian. In the early 2000s, the U.S. became a net exporter of pork, selling 25-29% of all production outside its borders. “That’s where any growth is going to be,” he said. “A lot of countries are seeing rapid economic development. When people improve economically, they eat more animal protein.”

Figures from the NMEF reflect strong demand from developing countries. Pork exports to members of the Association of Southeast Asian Nations were 32% above last year’s pace in volume at 67,158 metric tons and 44% higher in value at $159.2 million, led by a surge in demand in the Philippines and a strong year in Vietnam. Appetite for U.S. pork in the Dominican Republic and Trinidad and Tobago pushed exports to the Caribbean 5% above last year’s pace at 46,577 metric tons, while value was steady at $109.5 million.

Meanwhile, North American trading partners Canada and Mexico, along with Japan, remain good customers, though leapfrogged by China, Mr. Paustian said. The North American Free Trade Agreement, which the Trump Administration renegotiated and replaced with the U.S. Canada Mexico Agreement (USCMA), did nothing to change pork trading arrangements among the three countries, Mr. Hayes adds.

“We had perfectly free trade with Canada and Mexico under NAFTA,” he said. “We’re back to the same conditions.”

Pork exports to Canada are on the strongest pace since 2013, with January-October shipments up 7% from a year ago in both volume (189,776 metric tons) and value ($709 million). This growth comes despite a 4% increase in Canada’s 2020 pork production. Canada’s January-October pork exports were up 21% to 1.16 million metric tons, led by a 147% increase to China.

“Canada does not face the duties we face, so the temptation is to export their product, then backfill,” Mr. Hayes explained.

Looking to the future, “we’re hoping we can continue to build on the momentum we had started before COVID threw a wrench into things,” said Mr. Paustian. “Trade disputes had an impact on the bottom line for pork producers. We’d love to see some stability.”

He also hopes the incoming Biden administration will continue the Trump administration’s policy of exploring free trade agreements with other countries.

To keep exports growing, new markets are needed to replace China’s demand as that country rebuilds its hog herd and modernizes its pork industry. Previously, only 5% of Chinese pork producers had operations bigger than 1,000 animals, but that’s about to change. The world’s largest food companies are making multi-million-dollar investments in vertically-integrated facilities for raising and processing pork in China, according to Chip Whalen, an analyst with Chicago-based Commodity and Ingredient Hedging. “That’s ultimately the direction, but it will take some time,” he said.

In the short term, however, there’s still room to grow sales to the Asian giant, said Mr. Hayes. China already buys about 10% of U.S. pork, but if the Biden administration dropped tariffs the Trump administration imposed on steel and aluminum, China would take off the retaliatory duties it puts on ethanol and pork, he said: “It’s an enormous opportunity.”   CBJ