Pork Commentary
Jim Long President – CEO Genesus Inc. info@genesus.com
China! China! China!
October 26, 2015
The China pork market continues to be the wildcard for the hog price prospects for both the North American and EU markets. There are several truths. China’s domestic hog price is $1.25 USD liveweight per pound. The US price live is 52₵ per pound, while the EU-US price equivalent is 54₵ per pound. The price spread between the US and EU prices and China is just under $200 USD per head. No matter what Chinese statistics you look at, there has been a massive liquidation of sows, somewhere between 10 – 12 million sows. A number so large it is almost incomprehensible at almost twice the North American sow herd and almost equivalent to the EU sow herd. The truth is that China’s hog price was 85₵ USD in April; it is now $1.25. A $100 per head increase. There is no way the hog price increased a $100 without a massive decline in hog numbers. Prices do not lie. The Chinese Government a month ago released from their cold storage reserves an equivalency of pork equal to about 1.2 million market hogs. This was to have pork available for Chinese holidays and keep prices from jumping. It appears that the Chinese hog price increase has stopped sow herd liquidation. The reality is that the drop of several million sows over the prior months has not hit the Chinese market hog numbers yet. The biological timeline from sow herd expansion or liquidation is almost a year. The point is Chinese market hog numbers will continue to decline over the coming months and it will take significant time to increase numbers. In the meantime, we expect the Chinese Government will not want to allow pork prices to increase due to the importance of pork to the Chinese consumer and with its already lofty price. It is a social and economic issue. We continue to expect market moving pork export levels to China from both North America and EU. The only potential delay in accelerated exports would be Chinese cold storage pork releases by the Government. We are not aware of what pork storage levels are. Our opinion is storage releases will delay not stop pork imports. To accelerate pork exports, North American plants and hogs must each be certified paylean free. Some have it done others have paylean free process in place. One packer recently certified told us last week China’s market was worth at least an extra $10 per market hog. We understand several North American plants were certified for export to China last week. As an industry, we need to get paylean free as soon as possible. The need for imported pork for China’s volume will be almost incomprehensible. Our sense is the Chinese Government will wish to manage China’s hog price from increasing by bringing in imports. We continue to suspect that Smithfield Foods owned by Chinese interests and with a Chinese distribution chain will lead the way. If we seem to be a one trick pony about China, we admit guilt. The numbers are so daunting we can’t help it. This week we will be at the Swine Producers National Congress IV (OPORPA) in Puerto Vallarta, Mexico. We will be speaking regarding Global Markets and visiting Genesus customers. Next week our commentary will discuss our observations on Mexico’s market.
Categorised in: Pork Commentary
This post was written by Genesus