Chinese meat and food processing company WH Group Ltd. is looking for new markets to import pork amid the African swine flu epidemic in China, the world's largest market for pork, and the ongoing Sino-American trade war.
"With the deepening of the swine flu situation, things a bit tight and hog prices have increased, we are exploring other sources such as South America, North America and also Europe, so that we can have more diversified channels of import," CFO Lijun Guo told analysts and investors during the company's earnings call Aug. 13.
WH Group is not completely ruling out sourcing pork from the U.S., where it imports pork through its subsidiary Smithfield Foods Inc., but the tariff war between the U.S. and China is pushing the company to consider other markets.
"Looking forward, we will follow the latest development of the trade war to decide how much to import," Guo said. "If there is good profit, we'll move in and do more. When profit is dwindling, we'll import less, that is the plan."
Chinese companies have halted buying U.S. agricultural products after U.S. President Donald Trump imposed another 10% tariff on $300 billion worth of Chinese imports.
In May, the U.S. Agriculture Department's Foreign Agricultural Service reported that pork exports to China declined in value year over year by 20% to $138.2 million during the first three months of 2019.
According to Guo, WH Group imported 1.31 million tons of pork to China in the first half of the year, of which 138,000 tons were from the U.S. The executive said WH Group faced a number of unfavorable factors during the first six months, including the ongoing trade dispute and the spread of the African swine flu epidemic in China and Europe.
Hog prices in the U.S. also fluctuated dramatically due to the continuous oversupply of pork and the ongoing trade frictions, Guo added. The group exports pork from its U.S. operations to over 40 overseas markets, including China, Japan, Mexico and South Korea.
For the first half of the year, Hong Kong-based WH Group recorded a 16.9% year over year drop in profit attributable to owners of the company to US$463 million from US$557 million. Basic EPS also fell to 3.15 U.S. cents from 3.80 cents a year prior.
Revenue for the six-month period fell 0.4% to US$11.13 billion from $11.17 billion in the first six months of 2018.
"We anticipate the greatest challenge in China is the continuously soaring hog prices as a result of growing supply shortage which will push down our packaged meats margin. The greatest challenge in the U.S. is the on-going over-abundant supply of meats which will suppress our fresh pork profitability," WH Group said in a filing to the Hong Kong Stock Exchange, reporting its results for the first half of 2019.
WH Group's stock fell 4.23% to HK$6.57 following the release of its earnings report Aug. 13.