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African swine fever pushes China toward US for pork as trade war continues

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African swine fever pushes China toward US for pork as trade war continues

Chinese buyers are pigging out on U.S. pork to compensate for losses from African swine fever.

Despite the ongoing trade war between the two countries, the amount of U.S. pork and pork products sent to China spiked between June and August. Exports even blew past levels from before the trade war began, according to the U.S. Census Bureau. In August, U.S. exports to China totaled 56.7 million kilograms. That is above any previous August on record, including 2016, when the U.S. exported nearly 25 million kilograms and months before President Donald Trump touched off the trade war with China.

The U.S. exported 294.5 million kilograms of pork to China between January and August — more than it did in all of 2018.

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A major contributor to the increase are frozen carcasses, which accounted for roughly a fifth of exports by weight between January and August. Carcasses counted for less than 0.2% of exports during the same period in 2016, according to the Bureau's data.

U.S. companies including Smithfield Foods Inc. and Seaboard Corp. have made major contributions to the increase, according to Panjiva, a division of S&P Global Market Intelligence. Virginia-based Smithfield sent 17.6 million kilograms of pork to China between June and September, while Kansas-based Seaboard sold 5.3 million, according to Panjiva records of seaborne shipments.

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Other major pork-producing economies have increased their exports in China in recent months as well. But advantages such as a larger breeding stock and existing shipping routes make the U.S. better-positioned than other major pork producers, said Grady Ferguson, a senior research analyst at Gro Intelligence.

"The U.S. has been shipping plenty for years and years," Ferguson said in an interview. "To widen those routes out by 25% isn't nearly as hard as it would be for Argentina or Russia."

The African swine fever is on track to cut China's hog herds by 40% from pre-outbreak levels by the end of 2020, the U.S. Department of Agriculture's Foreign Agricultural Service, or USDA FAS, said in an Oct. 10 report. As a result, Chinese imports of pork are expected to rise to 2.6 million metric tons for 2019, higher than the USDA FAS's previous estimate of 2.4 million. In 2020, USDA expects that number will balloon to 3.5 million tons.

That new demand is arriving as many U.S. pork products sent to China are subject to retaliatory tariffs. In September, China said it would exempt limited quantities of pork and other U.S. agricultural products from the duties.

Chinese buyers are already looking abroad to meet demand. Tyson Foods Inc. said in August that it had been in contact with potential buyers in China, though it declined to provide details on its export plans.

Historically, the animal feed additive ractopamine, which is banned in China, was a major obstacle in selling U.S. pork to Chinese buyers. U.S. farmers often use the substance to keep hogs lean. At least one U.S. pork producer has stopped using ractopamine as Chinese demand for imports has risen, and others could follow suit.

In early October, the U.S. arm of JBS SA, which sells pork under the Swift Premium label, said it would eliminate ractopamine use in its supply chain, citing new potential export opportunities. Smithfield already has plants and farms that do not use ractopamine, though it still sources some hogs from farms that do.

"I would expect to see more" U.S. companies scale back ractopamine use, Ferguson said.

But even if U.S. shipments to China continue to rise, closing the gap between supply and demand will be difficult. China, the world's top pork producer, is unlikely to fill the void solely with imports, meaning that pork prices will rise and the country will likely have to look to alternative sources of protein.

Consumer prices for pork in China have nearly doubled so far. Local prices during the first week of October reached 28 Chinese yuan per kilogram, up from 15 yuan in June, FAS said.

In the U.S., prices for lean hogs are expected to rise on the Chicago Mercantile Exchange into 2020, rising above 80 cents per pound, according to futures contracts data from S&P Global. The spot settlement price on Oct. 14 was 61 cents.

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U.S. processors are betting that Chinese consumers will end up consuming other meats in pork's place. Executives at both Sanderson Farms Inc. and Tyson have said a shortage of pork in China could raise prices globally for chicken and beef.

Xu Hongzhi, an analyst at BRIC Agricultural Information Technology, said pork byproducts could help supplement the shortage of pork. China has historically purchased pork byproducts from the U.S. rather than EU countries since the byproducts are part of the European diet but generally avoided in the U.S. The EU, by contrast, has mostly exported only pork to China.

"Ideally, China would want to buy more agricultural products from the U.S.," since U.S. imports tend to be cheaper, the analyst said. "But sales of agricultural products have become a bargaining chip in the trade war."

While the Chinese government has declared African swine flu contained, Xu said the pork supply is unlikely to recover before the Chinese New Year holiday in late January, meaning that prices are likely to rise further.

Soon Chen Kang contributed to this article.

As of Oct. 14, US$1 was equivalent to 7.07 Chinese yuan.