Pork Exports Solid to China – Second Half of Year More Challenging

The pork market in the China/Hong Kong region continues to be a complex puzzle with many moving parts.

The pork market in the China/Hong Kong region continues to be a complex puzzle with many moving parts. July U.S. pork exports there dipped more than 17% in volume and 12% in value, although for the first seven months of the year the totals are up 20% in volume to 252,187 metric tons, or 556 million pounds, while value increased 55% to nearly $509 million.

The July totals of 30,311 metric tons (66.8 million pounds) were up slightly from June, but still down 18% from the monthly average during the first half of the year.  Maintaining the record pace of 2011 will be more challenging in the final five months of the year, when U.S. pork exports to China/Hong Kong averaged 51,644 metric tons (113.9 million pounds) per month.

The decline in U.S. pork exports to the region in July was consistent with global trends.  Total pork/pork variety meat imports to China/Hong Kong slowed to the lowest level since early 2011 – reaching 108,843 metric tons (240 million pounds) – a 14% decline and the first year-over-year decline since a slight dip in January.

Another telling statistic is the reduced difference between China’s domestic hog price and the comparable U.S. price.  Since mid-2010, when China ended H1N1-related trade restrictions, China has tended to import more pork muscle cuts and variety meat when its domestic prices are significantly higher than U.S. prices.  In July, the China/U.S. hog price ratio was the smallest it has been since mid-2010 with Chinese hogs averaging 39% higher than U.S. prices compared to an average difference of 73% during the first half of the year.

Even with lower July volumes, however, China/Hong Kong pork imports through July were up 16% from all sources to 834,399 metric tons (1.8 billion pounds), with larger volumes from all main suppliers (the EU, United States, Canada and Brazil).

China’s hog industry has been less unprofitable as the live hog/feed price ratio recently hit 4.37-to-1, down one-third from a year ago.  The hog/corn price ratio of 5.58-to-1 is down about 30%  and has been below the 6- to-1 profitability ratio for more than 23 weeks.

Corn prices in China are rising steadily, hitting $10.10 per bushel in early September, while soybean meal prices reached $740 per metric ton in early August – up from $560 in early June and up nearly 40% from 2011.

On the competitive front, U.S. pork is becoming increasingly attractive with prices now significantly lower than the other major pork exporter in the world. When measured in U.S. dollars per cwt in carcass weight, EU hogs have risen to $110 while U.S. hogs have dipped to around $65.  EU hog prices are now record-high and up 21% from last year on a Euro basis (up 12.5% in U.S. dollars, with the weaker Euro offsetting some of the increase). Tight supplies are helping drive EU prices, but high feed costs are still squeezing producers. The combination of high feed costs and enhanced animal welfare regulations implemented this coming January will further pressure EU pork production and will likely slow EU exports—thus enhancing the opportunities for U.S. export growth.

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