China is Just Part of the Demand Story Sparking a Surge in Pork Prices
Although the rising price of U.S. hogs is impacted by the African swine fever (ASF) setbacks China is experiencing in their hog herd, experts say it’s not the primary driver why prices are soaring in the U.S.
“The recent strength here in the U.S. hog industry has more to do with our own herd losses due to slightly more cases of porcine reproductive and respiratory syndrome (PRRS) here – especially in Minnesota and Iowa over the winter, some apparent herd liquidation and stronger product markets,” says Christine McCracken, Rabobank executive director, animal protein.
Lean hog prices on the CME experienced consecutive limit up days. As supply constraints are one catalyst, domestic demand for pork is also on the rise and the rebound is happening quicker than expected.
“Pork demand is really strong at retail and will likely strengthen through spring. There has also been some pipeline filling as foodservice operators are anticipating a rebound in sales as dining restrictions ease. The net result of all of this is a stronger market than most expected – which helps offset the pain of higher feed costs,” McCracken says.
ASF in China – How Bad Is It?
ASF outbreaks are nothing new in China. It’s been occurring since the country reported its first case in August 2018. McCracken says there was some preemptive selling to avoid losses, which pressured prices more in recent weeks and added to herd declines in the country.
As a result, hog prices in China have actually fallen 19% from January 1 through today, says Brett Stuart of Global AgriTrends.
“That was unsettling until we realized how severe their recent wave of ASF has been. Disease outbreaks across China have led to another wave of liquidation which has pushed their prices lower. We expect prices to be near a bottom for now and think they will be rising by the end of March,” Stuart says.
Although U.S. pork exports to China are still very good, a year ago China was buying big volumes, Stuart adds. The U.S. is shipping around 25% of its production overseas.
Despite what’s happening in China, McCracken and Stuart agree that the big rallies in futures and prices appear to be driven by domestic supply and demand.
“With an inevitable COVID recovery in coming months (U.S. cases are down 77% in the past six weeks and vaccine is flowing quickly), it’s hard to imagine anything but rising demand into summer,” Stuart says. “U.S. personal savings have averaged around $1 trillion over the past 10 years (pre-COVID). January data showed U.S. personal savings at $3.9 trillion. Caged-up Americans are about to be let out for travel, restaurants and recreation.”
He adds that agriculture commodities have appeared under-valued in relation to the equity markets. Record stock markets produced record returns that need reinvested somewhere.
“Would you rather buy bitcoin near record highs or lean hog futures ahead of a COVID recovery? Non-commercial net long positions (speculative longs) are up more than 33,000 contracts since the first week of January,” Stuart says.
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