Over the past three weeks, the USDA Food Safety and Inspection Service has reinstated the eligibility of seven U.S. pork processing plants and four cold storage facilities to export to China. To be eligible, products shipped from these facilities must be produced on or after Oct. 16 and meet China’s requirements as outlined in the FSIS Export Library.
Since mid-2014, the U.S. industry’s ability to ship to China has been greatly hindered by enhanced requirements for exports as well as the small number of eligible plants. This has been particularly frustrating in recent months as China’s domestic production slowed and its need for imports trended higher, but the United States was not in a good position to capitalize.
China produces and consumers about half of the world’s pork. So while it is nearly 98% self-sufficient in pork production, any downward shift in production creates a deficit that can result in a significant opportunity for foreign suppliers – provided, of course, that they have eligible product from eligible plants.
“Plant eligibility doesn’t translate automatically into an increase in exports, but the reinstatement of these plants certainly brightens the prospects for stronger U.S. exports in late-2015 and into 2016,” says U.S. Meat Export Federation Economist Erin Borror. “The EU still enjoys an advantage due to the weak euro and ample China-eligible supplies, which has helped European pork gain a very strong foothold in China. But the U.S. industry has well-developed marketing channels in China/Hong Kong and will now be able to compete more aggressively for market share.”
The China/Hong Kong region’s combined pork-pork variety meat imports trended higher in September, increasing 7% from a year ago to 162,489 metric tons – the largest monthly volume since April. Through the first three quarters of the year, imports totaled 1.35 million mt – up 4% from the same period last year. With imports likely to increase even further in the fourth quarter, the region is likely to set a new import volume record in 2015.
When looking specifically at muscle cuts, the region’s import growth is even more dramatic. September muscle cut imports increased 44% year-over-year to 88,789 mt – the largest in nearly four years. China’s direct imports soared 83% higher in September, but were partially offset by a nearly 20% drop in Hong Kong’s import volume. For the first three quarters of the year, pork muscle cut imports entering the China/Hong Kong region were up 13% to 651,038 mt.
Export data from supplying countries show that January-to-September shipments to China/Hong Kong increased 5% year-over-year to 1.42 million mt. The European Union accounted for 68% of this total, with exports totaling about 970,000 mt – up 14% from the same period last year. Exports from the United States were down 11% to 217,968 mt, accounting for about 15% of the volume entering the region. Canada (88,242 mt, minus-21% year-over-year) and Brazil (86,644 mt, plus-4%) each hold about 6% market share. Rounding out the region’s list of top pork suppliers is Chile (42,223 mt, plus-20%), with 3% market share.
In early November, China’s live hog prices continued to soften, down 10% from their September peak, but were still up nearly 17% from a year ago, averaging $1.18 per pound. Producers have been extremely profitable since about mid-year, partly driven by cheaper feed prices, and this is expected to foster expansion.
Most analysts see China’s hog and pork prices remaining relatively strong in the first half of 2016, at least compared to 2014 and early 2015 price levels. Continued improvements in production efficiencies and potential expansion will likely limit price surges next year, suggesting a less supportive climate for imports.