Is China about to re-enter the US pork market?

Year-to-date, US pork exports are down 18% from the same time last year. Mid-year pork trade with China was down 38 million pounds. Trade with Colombia is up 15 million pounds and 11 million pounds with Mexico and the Dominican Republic. Pork exports as a percentage of production fell to 18%, a five-year low.

In addition to the sharp drop in pork exports, there is a sharp increase in pork imports. This can be attributed to the strong dollar and the high price of pork. Year-to-date pork imports are up 43% from the first half of last year.

The majority (60%) of the surge in pork imports is due to Canadian pork. Recently, China relisted three Canadian pork plants. One plant has been out of service since 2019 and the other two since 2020. It looks like China is gearing up to import increasing amounts of pork. If they start buying Canadian pork, expect US pork imports to drop significantly. Canada exports 80% of its pork production.

In the last week of July, US pork export sales were strong, up 35% from the four-week average at 31,000 MT. China was a buyer of 16,800 MT, taking 54% of total sales. Mexico bought 8,600 MT, with Japan, South Korea and Canada also being major buyers.

So the big question is, is China returning to the U.S. pork market in a major talk. Pork prices have increased significantly in China over the past two months. We have to assume that production drops in China as the mass herd liquidation is over. My sources also indicate that prices for baby pigs are rising rapidly in China. This tends to confirm the drop in pig production and the return to profitability. Another expansion, perhaps, has begun.

My best guess is that China will re-enter the US pork market in a meaningful way this fall. While the surge in business in the last week of July was impressive, I would be very surprised if this level of imports continued given the current high price of many pork cuts. It would be more typical for the Chinese to expect prices to drop as production increases in the fall.

Recent hog price activity in the United States has been very strong. Packers were forced to chase after hogs, aggressively competing for hogs in the traded market. Despite weak export demand, domestic demand for pork remains quite strong. Competition for hogs has kept packer operating margins in the red, sometimes deep in the red. This is quite normal during the summer months. I expect a normal type of corrective price activity this fall.

In late summer, expect hog numbers and weights to increase, boosting production and lowering prices for major primal cuts of pork. As prices fall, eventually increased demand will emerge, primarily through exports. What I am describing is the normal behavior of hog and hog markets during the transition period from summer to fall. A seasonal bottom in futures prices normally occurs from late August to early September.

The October hog contract remains very high, recently settling at $98.40, the highest price since April 20. Only two other times in 17 years have October futures hedged fall production above $98.00. One was last year and the other was in 2014.

Hog prices and hog futures prices are expected to remain historically high for the foreseeable future. For the first time in modern history, the industry experienced a simultaneous contraction in China, the European Union and the United States. Global pork production is expected to decline significantly by 2023, just as beef production in the United States is also down sharply. There is a strong possibility that lean hog futures prices in the summer of 2023 will see record highs.

Source: Dennis Smith, who is solely responsible for and owns the information provided. Informa Business Media and all of its affiliates are not responsible for any content contained in this information asset. The opinions of this author are not necessarily those of Farm Progress/Informa.

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