According to Rabobank’s report for the third quarter of 2021, the redistribution of pork trade could push prices down in exporting regions. Meanwhile, the latest USDA report estimates that Chinese pork production will decline in 2022 due to low inventories and a lower sow census.
The great volatility in Chinese hog and pork prices have been rippling through the global market. China’s slaughter rates were unexpectedly high in the second quarter, pushing pork production up 35.9% year-over-year in the first half of 2021, according to official data. The sudden supply increase resulted in a sharp price decline and negative results in both farming and trading in the first half of 2021, pointing to low pork imports into China in the third quarter. Although Rabobank expects hog and pork prices to rebound in the third quarter, the estimated high frozen pork inventory will push prices down. Rabobank expects that a slowdown of imports in the coming months will reduce full year imports from 2020’s record levels by 10% to 20%. That will lead to a redistribution of pork trade in the global market and could place downward pressure on pork prices in exporting regions.
China’s pork production showed strong growth in the first half of 2021, due to liquidation caused by ASF, which continues to spread. Currently, demand growth lags behind supply growth, reflected by the sharp fall in prices. Restocking has slowed, as farmers suffered sizable losses. Due to the liquidation of sows in the first semester, Rabobank expects slaughter to slow down and prices to rise in the third quarter. However, the high frozen pork inventory will limit price movements.
Impact of the global scenario in Chile
China is the primary destination of Chilean pork exports, so fluctuations in the Chinese market also have a local impact. During the first half of 2021, exports were 10% higher in volume than in 2020, 173,399 ton cwe, and China represented 75% of the volume of exports.
Regarding the situation in other countries, Europe registered strong production growth of 5% year-on-year in the first four months of 2021, due to a backlog in slaughter at the end of 2020. However, high feed costs and softening exports will limit production growth in the third quarter. Exports to China were down slightly offset by shipments to Vietnam and the Philippines. New ASF outbreaks in German domestic pig farms add new risks.
As for the United States, after reaching record highs in mid-June, hog prices are lower stabilizing on strong demand and lower production. Disease loss, lighter slaughter weights, and high feed costs will moderate production in the second half of 2021. Pork prices remain well ahead of expectations on strong belly and ham demand. Exports declined slightly through May, with weaker sales to China outweighing increases to Mexico, Canada, and Japan.
Meanwhile, pork production in Brazil started the year at a good pace, due to the positive results in 2020, mainly in exports. However, high feed costs will discourage further production growth in the coming months in some regions. In terms of demand, the a-typical increase in beef prices in the first months of 2021 following dry climatic conditions has favored the consumption of chicken and pork.
Chinese forecasts for 2022
In 2022, China’s hog production is forecast to decline by 5%. Low prices and disease outbreaks in 2021 led to significant slaughter and delayed restocking. In 2022, government policies will disincentivize small- and medium-scale operations by controlling how quickly pork prices increase. Large, well-capitalized operations will benefit from other subsidy policies. As fewer small- and medium-scale operations remain in the market, the share of hogs produced by largescale operations will continue to grow.
Imports of live breeding swine in 2022 will decline by 14% to 30,000 head as pork price management by China’s regulatory and planning agencies tempers expansion. However, other policies to develop China’s domestic genetics production and improve overall sow productivity will ensure that imports of live breeding swine do not sharply decline.
In 2022, pork production will decline by 14% as fewer hogs reach market weight compared to prior years. In 2021, the slaughter of a significant number of over-weight hogs boosted pork production and dramatically lowered pork prices during the first half of 2021. In 2022, government price controls will undermine hog and pork production. Consequently, Chinese pork exports will fall 10% to 90,000 metric tons.
Next year, a tight pork supply will drive pork imports to reach 5.1 million metric tons. In 2021, significant slaughter increased pork production and frozen pork reserves. Higher consumer and institutional demand in the fall and winter months of 2021 will deplete frozen pork reserves. For this reason, pork imports are forecast to rise in 2022 as pork supplies tighten.