China's WH Group, world's top pork processor, reports profit jump

BEIJING (Reuters) - The world's biggest pork processor, WH Group Ltd 0288.HK, reported on Tuesday a 32% jump in 2019 profits as record high pork prices in China boosted the value of the company's exports from the United States and lifted margins on its China sales.

FILE PHOTO: Workers sort cuts of fresh pork in a processing plant of pork producer WH Group in Zhengzhou, Henan province China, November 24, 2017. Picture taken through glass. REUTERS/Dominique Patton/File Photo

Group chairman Wan Long said the coronavirus epidemic in China this year has had a very limited impact on operations or demand and that more than 95% of the group’s operations in China were back to normal.

Pork prices in China, the world’s biggest producer, soared last year after the African swine fever disease devastated the country’s herd, shrinking the inventory of breeding sows by more than 60%, according to some estimates.

WH Group, which owns U.S.-based Smithfield Inc, said 2019 profit attributable to owners of the company, before biological fair value adjustments, totaled $1.378 billion, compared with $1.05 billion a year earlier, while revenues rose 6.6% to $24.1 billion.

It said its China operations were “severely constrained” by lower supplies of hogs and softer demand as pork prices escalated. It processed 13 million hogs in China, down 19% on the prior year.

Sales of packaged meats in China, the group’s largest source of profits, were flat on 2018 as consumer demand slowed.

However, WH Group saw a 46% increase in operating profit in its fresh pork business as it sold off large inventories of frozen meat stored when prices had been low and also boosted imports of cheap pork from the United States.

In the United States, operating profit from fresh pork tripled that of 2018 to $150 million as values rose on the strong export prospects, particularly in the second half of the year when trade disruptions weakened, said the company.

China’s hog production and slaughter volume will further decrease in 2020, Ma Xiangjie, president of Henan Shuanghui Investment and Development, the group’s China unit, told reporters in a media briefing, despite efforts by Beijing to promote a rapid recovery in the hog herd.

“We are planning to increase imports from the U.S. to offset insufficient supply from China,” he said, without offering details on a target.

The company’s exports from the U.S. to China had already grown almost three times last year, thanks to a “huge price spread” that is expected to continue, group chairman Wan Long told reporters.

Wan said hog prices are currently more than four times the U.S. and said he expected the spread to remain at about 3.5 times in the second half of this year.

WH Group will also expand its poultry output to supplement its meat supply, and is building an integrated farm and processing plant with capacity for 100 million chickens in central Henan province.

Reporting by Dominique Patton; Editing by Louise Heavens and Susan Fenton