Jim Long, President-CEO, Genesus Inc.
Not Sure the Market gets it?
We sure wonder if the U.S. lean futures markets get what’s coming from the unprecedented liquidation of China’s sow herd.
• While we were in China we heard Rabobank executive tell us that China’s pork shortfall in 2019 would be in 16 million tonne range.
• The U.S. produced in total 11.942 tonnes in 2018.
• We understand that a U.S. packer is about to start sending 50,000 hog carcasses a week to China.
• As we wrote last week we were surprised in our 2 weeks travels in China that most we talked to believe that the China sow herd has declined in the 50% range.
A foreign veterinarian that works in China wrote last week;
“This is the time we must work together. They will need to replace 20-30 million sows! Note the Chinese eat the whole United Kingdom herd in a week (6 days to be precise).”
The decline in the sow herd in China is having an unprecedented effect not only the current and future hog supply but when we talked to Chinese feed companies they were certainly trying to figure how to cope with the rapid decline in feed needs.
We read somewhere that China imports 70% of the worlds’ soybeans. If China production declines 200 million head, the need for soybeans will be greatly decreased. Also the need for corn, premix, vitamins etc. China is near self-sufficiency on corn so the current drop in hog production all but guarantees that no corn imports will be needed.
The Chinese strategy we believe is strategic. The facts on African Swine Fever (AFS) elimination are spotty. In China all say no one knows for sure what liquidation is. It’s all industry conjecture. This in itself has kept a lid on global prices.
We expect the Chinese as good capitalists wish to use lower global cash hog markets to quietly lock in pork supply. The amount of pork needed is mind boggling.
More than one Chinese industry person told us it would take five years for the Chinese pork industry to recover.
We expect 2019 is Chinas’ 1998. 1998 was when U.S. hog prices dropped to 8₵ lb. When the dust settled many of the larger hog producing companies had new ownership or were consolidated into other companies. We expect that ASF could do the same to China.
We understand some of Chinas largest companies have lost up to and over 50% of their sow herds. The financial impact could be mind boggling.
We expect Chinas hog prices will soar after the cold storage supply is emptied due to coming ASF testing, the timing of sow herd liquidations to market hogs (about August),and seasonal pork demand. Most in China expect hog prices in the 23-28 rmb range kilo ($1.54-$2.00 U.S. lb. liveweight) yet this year. If that happens our expectation that all Hog Prices in the world will set new record highs is a no brainer.
Good News for U.S. Producers
Last week the U.S. and Mexico came to agreement on removal steel tariffs.
With that Mexico agreed to remove a 20% tariff on all U.S. pork.
It’s a significant gain for U.S. producers. Mexico imports 40% of all U.S. pork exports, much of it hams.
According to the U.S. National Pork Producers Council (NPPC) the tariffs cost American producers $12 per head or 1.5 billion. If NPPC is correct then U.S. hogs should appreciate $12 per head real soon.
Already U.S. Pork is entering Mexico duty free.
This post was written by Genesus