Pork producers are relishing rising pork prices, with lean hog futures skyrocketing since March. Much of that momentum is from China coming back to the market to buy U.S. pork.
Just this week, USDA’s weekly export sales showed pork export sales totaled more than 40,000 metric tons last week… nearly half of that came from China. The purchase came on the heels of a 77,000 metric ton purchase from China the week prior.
The recent surge in Chinese pork buys is mainly due to African Swine Fever continuing to impact the country’s hog herd.
“We have people on the ground who tell the breeding herd in Shandong is down 42%, even though they’ve only had one reported case in Shandong,” said Arlan Suderman of INTL FCStone.
Suderman said sources in China say hog feeding in China could be down more than 30%, a scenario for China to need more pork.
“It really creates a meat shortage globally of around 12.3 million metric tons, if we’re right on the 30 percent reduction—the reduction may be more than that,” said Suderman.
The recent China buying comes amid steep tariffs on U.S. pork products; a sign that some analysts say shows just how dire of a situation ASF may be in China.
U.S. Meat Export Federation’s (USMEF) final 2018 tally showed pork exports were flat in volume last year, but down 1% in value. While pork producers weren’t able to celebrate an increase in 2018 exports, National Pork Producers Council (NPPC) said maintaining exports, considering the tariffs on pork goods, is an impressive feat.
“2018 export numbers were phenomenal because we have duties on pork going into Mexico of 20% and we have duties of an additional 50%, on top of the existing 12% duty in China,” said Dierks.
The tariffs are still in play and muting some of the industry’s outlook right now.
“Dr. Dermot Hayes estimated the impact on pork producers in Mexico equate to about $12 per animal, which is roughly a $1.5 billion loss of opportunity for the industry,” said Dierks.
Dierks said some of the biggest losses in exports are coming from products with the steepest tariffs, including hams.
“Mexico is our largest ham buyer,” he said.
Mexico is a market where the U.S. is seeing a disadvantage from price, but a market where the U.S typically sees an advantage due to logistics and location. Dierks explained the U.S. is able to send fresh hams to Mexico, instead of frozen. The ability to send fresh product puts the U.S. at an advantage over competitors like the European Union, who’s forced to send frozen product to Mexico.
“That means the Mexican buyer has to take the hams, thaw the hams before they can process it, so there’s a natural advantage with sending chilled product,” he said.
Dierks said the advantages of buying U.S. pork are clear, but those advantages can only be seen when no barriers stand in the way.
“The demand for hams in Mexico far outstrips their domestic production, but there are challenges,” he said. “Those tariffs have hurt us. It’s not good for us, not good for the Mexican consumer. We just need to have them taken off.”
The NPPC CEO said steep tariffs have been in play since last summer. And the longer the added duties linger, the longer he fears it will take for the U.S. pork industry to recover.
“The U.S. is the largest, most efficient supplier of pork, and we can complete with anyone, as long as we don’t have government standing in our way,” he said.
Internationally, the pork industry is seeing challenges, but domestically consumers are hungry for pork. Domestic protein consumption per person was close to hitting an all-time high in 2018. John Nalivka of the Sterling Profit Tracker said Americans consumed 219.5 pounds of meat per person last year. He projects that number to grow in 2019 to 221 pounds per person, which would just miss the record set back in 2004 of 221.9 pounds per person.
During Easter weekend, domestic consumption for hams is big, as the National Pork Board (NPB) said most of the supply is chewed through around Easter each year. NPB said Nielsen shows U.S. consumers eat 8.5 million pounds of whole hams during the two-week period leading up to Easter, which equates to $20.6 million.
While indulging in hams is a popular tradition during Easter, driving most of the growth in pork consumption is bacon.
”One thing we know at National Pork Board is everybody loves bacon,” said Bill Even, CEO of the NPB. “They love the flavor; they love the taste. It's the gateway drug for vegetarians.”
Fast food restaurants such as McDonald’s are also jumping on the bacon train, featuring more bacon on their menu. McDonald’s even gave away free bacon in January, a move that went viral on social media.
“The pork producers could not pay for this level of social media exposure and the interest in the buzz surrounding it,” said Even. “It's fantastic when you have food service partners that really step up to the plate . And how can they drive sales within their company and improve profits? Give them bacon.”
Even as domestic demand continues to grow, it’s added appetites the pork industry needs right now.
“Whether it's on top of burger or by itself with eggs, bacon is an American staple,” Even added. “It's really taken off not only domestically, but also internationally as well.”
Whether it’s beef or bacon, U.S. consumers are hungry for protein, even as headwinds for hams and other tariffed products persist.