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Column: China exchanges U.S. pork for soybeans after both lead 2020 exports

FORT COLLINS, Colo. (Reuters) - Soybeans usually account for about half the annual value of U.S. farm exports to China, but pork uncharacteristically joined the oilseed atop the list in the first half of 2020 as the world’s top consumer scrambled to fill its protein deficit following a pork output plunge.

A pen of young pigs is seen during a tour of a hog farm in Ryan, Iowa, U.S., May 18, 2019. REUTERS/Ben Brewer

China has been rebuilding its hog herd, the world’s largest, since deadly African swine fever (ASF) was first reported in the country two years ago. In the meantime, the United States has helped pad China’s pork needs for over a year now, which also works out well considering the Phase 1 trade agreement.

But U.S. pork exports to China have fallen off the previous pace, while at the same time the Asian nation started buying up record amounts of U.S. soybeans and corn, which were in lower demand at the height of the ASF outbreak last year.

In theory, China should not be able to completely fill the pork gap with imports of swine and other meats. Still, its interest in U.S. pork has recently cooled.

U.S. producers have been gearing up for the surge in exports, and government forecasts show 2020 pork output up 3% over 2019, hitting a new high. Domestic hog slaughter took a nosedive in April as the global pandemic accelerated, but those numbers are back within 2% of pre-virus levels this week.

Major pork exporters like the United States could be primed for an unexpected increase in business as ASF in wild boars has been confirmed this month in key supplier Germany, prompting bans on German pork from some buyers including China.

PORK VERSUS SOYBEANS

Pork and pork products have substantially lifted U.S. farm exports to China so far this year amid a dismal performance from soybeans, the typical top item.

Between January and July, the United States exported a record 1.775 million tonnes of pork worth $4.6 billion, according to data published earlier this month by the U.S. Census Bureau.

Shipments to China accounted for 36% of the January-July tonnage, valued at $1.5 billion. U.S. soybean exports to China during that timeframe also totaled $1.5 billion, but the volume of 4.2 million tonnes was a 16-year low for the period.

Soybeans and pork were the leading U.S. farm export to China in the first seven months of 2020, accounting for 18% each of the total $8.6 billion. That pork share is three times larger than last year’s high for the period, but for soybeans it was a 21-year low.

PORK SLOWDOWN

U.S. pork and product exports to non-China destinations between April and June hit a 13-year low as the pandemic forced many slaughterhouses to close or throttle operations, tightening domestic supply and driving up prices.

But shipments to China were strong, and the April and May volumes were the two largest ever for any month, with April notching 112,327 tonnes.

June and July shipments to China were each monthly records, but they were about a third lighter than in the previous two months, and both were the smallest since October 2019. August exports to China were even lower, but those to all other destinations likely reached a five-month high.

China is still buying U.S. pork, though at a slower pace than a few months ago, and outstanding sales as of Sept. 3 were nearly identical to a year earlier. China is this year’s top U.S. pork buyer through the same date with 38% of the total sales.

Meanwhile for Brazil, which exports less than one-third the amount of pork as the United States, business to China has also boomed in 2020, and trade has not yet slowed.

Brazilian exports of fresh, frozen or chilled swine meat to China hit a monthly record of 52,019 tonnes in May, and shipments remained elevated through August. The volume in those four months was 125% larger than in the previous year, and simultaneous shipments to all other destinations were up 15% on the year.

So far in 2020, some 54% of Brazil’s pork exports have gone to China versus one-third in the same period last year.

REPLACED BY GRAINS?

China’s agriculture ministry reported on Tuesday that the country’s pig herd in August was up 31.3% on the year and its sow herd up 37%. In August 2019, the pig and sow herd were down a respective 38.7% and 37.4% on the year. The ministry does not report actual herd sizes.

With the rebuilding of its hog herd, China recently seems focused on fulfilling the Phase 1 targets with U.S. grains rather than meat, and the volumes have been impressive. But the 2020 objective for China to purchase and import at least $36.5 billion in U.S. farm goods could remain a challenge.

China imports massive amounts of soybeans to crush into protein-rich meal that is fed to its hogs, and it has been making big purchases of the U.S. oilseed almost daily. The Asian country’s 2020-21 U.S. bookings are approaching 18 million tonnes, record for the date and worth in the vicinity of $6.5 billion.

China’s U.S. corn purchases for delivery over the next year are nearing 10 million tonnes, worth around $1.5 billion. That value just about ties 2011-12’s full-year record on nearly half the volume.

Lower commodity prices relative to prior years already complicates Phase 1’s dollar target, but it was going to be extremely unlikely anyway for pork to make a significant dent on China’s goals since the exported volume is simply not large enough.

Even with enormous record U.S. pork shipments to China this year, the annual value will top $2 billion at best, whereas soybean shipments to China often exceed $10 billion in a typical year.

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

Editing by Lisa Shumaker

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