Reports swirled on Monday that China was lashing back at the U.S. by temporarily halting purchases of U.S. pork and soybeans. As more daily sales started showing up this week, that headline quickly diminished, and prices responded on the board.
“I don't want to call it fake news, but I believe that it was an old story picked up from the Chinese media a week or so ago [and] broadcast by U.S. media [that] got the markets all riled up,” says Dan Basse of AgResource Company.
Basse says the daily sales confirmed what he’d been hearing from sources both in the U.S. and China: buyers in China are still interested in U.S. ag products.
“As I talk to Washington and my Chinese friends, business is normal, at least at this point,” says Basse. “Retaliation from the Chinese doesn't appear to be in the cards at the moment. And China is still buying U.S. soybeans, pork and lots of other U.S. ag products.”
Steve Meyer of Kerns and Associates says pork sales to China have been staggering. The May U.S. Meat Export Federation export sales report showed exports to China shot up 320% through the end of March.
“We think that number is going to stay very, very strong,” says Kerns. “It's driven total exports up about 36% through that time period, and they're still running well above last year's pace. We had weekly data come out Thursday morning that showed exports to China, while not as good as they've been in a few weeks, they were still quite acceptable as far as the current times would be considered. So, I think this thing is still rocking along pretty well now. “
Meyer says there are some mixed messages coming out of China, including some possible difficult of getting pork into the world’s largest pork buyers.
“We’ve heard of difficulties getting orders secured by the Chinese this last week, so there is some trouble out there,” says Meyer. “I tend to ascribe that to the Chinese are smart people. They know if they dragged their feet a little bit, they can have an impact on pork prices and might be able to buy that a little bit cheaper. So, we think there's some of that gamesmanship going on here as well.”
Pork prices have come down some. Basse says as pork prices dropped, so did prices at the CME.
“We’re going to move back to that 90-95% of kill capacity going forward, but I do believe, as Steve mentioned, the Chinese are playing some games,” he explains. “For example, if somebody signs a sales ticket on a container going over and misses an initial or something like that, the Chinese are very scrutinous of that. But again, I do believe that without that, trade is relatively normal.”
Basse says Chinese business is imperative moving forward for U.S. pork, especially to help prop up prices.
“We need that Chinese business with this level of pork production to keep it going for producer prices to increase,” he says. “I'm concerned that the CME comes down, cash hogs stabilize and maybe even rally seasonally, but at the moment, with the amount of pork hitting the market today, it’ll likely to keep the CME under pressure.”
A positive sign for pork is processing plants coming back online. Meyer says the pace of processing picking up is better than what he and many others in the industry anticipated.
“As of Wednesday, we reached the highest level we've seen so far on capacity utilization that was actually not idle at about 85%. The idle number was 14.6%. We jumped it on Monday when the Tyson plant at Storm Lake was down on Friday, Monday and Tuesday. It operated on Wednesday at about 10,000 head.”
Meyer says another Iowa plant had some mechanical issues that slowed down the processing pace, but overall, he says plants are coming back online.
“We're gaining on it,” says Meyer. “I think the plants are implementing the CDC guidelines. So, it’s a question of where do we get back to? I think that’s the real question here.”
Meyer says a few weeks ago, he firmly believed plants would struggle to reach 90% processing capacity, but after improvements and progress at plants, he says his tune has changed.
“Since we made some real progress. I thought maybe we can get to 95%,” says Meyer. “I'm a little doubtful of that. I think 90 to 95% is going to catch it and to start getting to where we can just slaughter the pigs that are available for this week.”
Meyer says the industry still needs to work through the backup of hogs that need to be processed, and many plants are now harvesting animals on Saturdays.
“We haven't slaughtered the available pigs in a week yet,” says Meyer. “We're still backing up market hogs out there. This week's going to be close. But with Storm Lakes down Monday and Tuesday, we'll probably fall short of that available number of hogs again this week.
Basse agrees with Meyer and thinks plants will start to process 90-95% of normal, but it’s just a matter of when that happens.
Click here to watch U.S. Farm Report’s “Pork Week” special.