November 22, 2019 / 11:17 AM / 16 days ago

Column: China is single-handedly driving growth in next year’s U.S. pork sales

FORT COLLINS, Colo. (Reuters) - The United States has sold and shipped more pork this year to international buyers than ever before amid a global protein squeeze, though China is the only one that has stepped up to the plate in a big way for 2020.

New female pigs are unloaded into a Char Pork Farm facility in Lone Rock, Iowa, U.S., August 28, 2018. REUTERS/Jordan Gale

China does not usually import much pork relative to what it consumes since it has a robust hog industry, but animal numbers have plunged ever since African swine fever (ASF) began to spread through the herd last year.

The U.S. Department of Agriculture sees 2020 Chinese pork production falling 25% from this year’s levels, which were already down 14% from 2018. It is unclear how long the impacts of ASF will be felt and just how severe it is, but some analysts believe the effects are still underestimated.

As of Nov. 14, U.S. sales of fresh, chilled, or frozen muscle cuts of pork totaled 1.65 million tonnes for the current year, some 44% above the same week last year, which was record at the time. Removing the sales to China still yields a record volume over last year by 10%.

In the latest week, combined sales for the current and new years reached 90,809 tonnes, likely the second-largest total for any week in records back to 2013. China accounted for most of the 2020 sales, while others were bigger buyers for 2019.

Pork is not usually sold too far out in advance of shipment, but U.S. sales for 2020 are already enormous and unprecedented. Bookings stood at 253,628 tonnes as of Nov. 14, and 92% of that was to China.

But 2020 sales to all other countries had reached only 21,000 tonnes, fewer than 1,000 tonnes above the same weeks in 2018 and 2016.

Top buyer Mexico has nothing booked for next year. While this is not terribly unusual, sales would be expected to pick up in the coming weeks and it will be something to watch for.

Official data from the U.S. Census Bureau shows 2019 pork and pork product exports at a record 1.9 million tonnes through September. It is important to recognize the difference between this data and the numbers shown in the weekly export sales report, as the latter includes only fresh, chilled, or frozen muscle cuts of meat. Processed or cured products like pork sausages or salami are not included.

Through September, exports in the weekly sales report totaled about 960,000 tonnes, about half of the total pork and pork products reported by the Census Bureau in that same time frame.

Weekly export sales also suggest that as of Nov. 14, some 275,800 tonnes of pork sold for 2019 had yet to be shipped. That is significantly larger than the previous record for the week of 156,976 tonnes set in 2016, and it all but guarantees that exports should easily set new highs this year.

PRICE RECOVERY?

Many market-watchers have been disappointed by the price action in lean hog futures, traded on the Chicago Mercantile Exchange, especially as China continues to buy record amounts of U.S. pork.

This year, futures have fallen nearly 34% since peaking at 93.025 cents per pound in May, though they are still about the strongest for the time of year since 2014. Prices are following the seasonal pattern, which typically features more subdued values toward the end of the year.

Hog prices usually peak between May and July when domestic consumption is the strongest. Average front-month futures during November have not been higher than in the peak months in at least 10 years.

But professional trading funds are not as confident as usual in a price recovery for lean hogs. As of Nov. 12, money managers held a net long position of 13,248 futures and options contracts, their least bullish view since mid-March. That is funds’ least optimistic stance for the date since 2008, though it compares with 2010 and 2015.

U.S. pork exports are seen setting another record in 2020, but production is predicted to do the same, and the numbers do not suggest a tightening in the domestic market given the projected demand. According to USDA, U.S. hog and pig inventory was record-high for the date back on Sept. 1, and 2020 pork production is seen rising 4% on the year to an all-time high of 13 million tonnes.

The opinions expressed here are those of the author, a market analyst for Reuters. 

Editing by Matthew Lewis

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