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Column: U.S. pork producers well-equipped to supply China's needs

FORT COLLINS, Colo. (Reuters) - China’s pork imports should surge to an all-time high in 2020 after African swine fever decimated its hog herd, and the United States is ready to take on the task as it also eyes a new export record.

Customers select "la rou", a cured pork delicacy and sausages at a market ahead of the Chinese Lunar New Year in Beijing, China January 16, 2020. REUTERS/Jason Lee

The United States closed out last year with the largest-ever year-end inventory of frozen pork, some 15% more than at the end of 2018, according to data published Wednesday by the U.S. Department of Agriculture. The stockpile of 581 million pounds was up 5% on the previous end-of-December high notched back in 2008.

Frozen U.S. pork supplies also set monthly highs in October and November, and that data dates back to 1917. Prior to October, a new monthly record had not been set since January 2016.

U.S. hog producers increased animal inventory over the previous year during every quarter in 2019 by an average of 4%. Those numbers were all record-high except for the Dec. 1 count, which has a much longer period of record. The population of all hogs and pigs on Dec. 1 was 77.3 million head, second only to 1943.

April lean hog futures traded on the Chicago Mercantile Exchange hit two-week highs on Thursday, finishing at 75.35 cents per pound. That is 16% higher than a year ago, which was an 11-year low for the date, but the severity of African swine fever in China was not evident to the market until March 2019.

After that revelation, hog futures were generally elevated for much of last year when compared with other recent years, though some market bulls felt that prices were still not high enough to truly reflect the huge global pork deficit that would be caused by China’s hog deaths. But so far, the U.S. herd and production rate has been increasing sufficiently to meet projected rise in demand.

CHINESE IMPORT BOOM

Data published by China’s General Administration of Customs on Thursday shows the country’s total 2019 pork imports hit 2.11 million tonnes, some 75% more than a year earlier. Although the United States is not China’s primary supplier, U.S. pork shipments to the Asian country easily soared to a new record last year, with particularly large volumes in the second half.

Through November, U.S. pork exports to China had reached 472,811 tonnes, some 42% more than the previous high for the period set in 2016. The boost in business makes a substantial difference to U.S. suppliers, but just to put this in context with China’s demand, last year’s U.S. pork imports accounted for only 1% of China’s total annual consumption.

USDA estimates that China consumed 48.97 million tonnes of pork in 2019, which was a 10-year low and down sharply from the prior year.

In the first 11 months of 2019, the value of U.S. pork exports to China totaled $1.04 billion, well beyond the previous full-year high of $714 million set in 2011.

These are important figures to remember since the Phase 1 trade deal recently signed by the two countries calls for China to purchase at least $36.5 billion worth of U.S. agricultural products in 2020, up 52% from three years ago. It is also worth noting that there is a reasonable limit on how much U.S. pork production can expand from last year, which would also affect exports.

USDA projects U.S. pork output to hit a record-high 13 million tonnes in 2020. That would be a 4% increase from 2019, a relatively average rise compared with prior years. Exports are seen at 3.22 million tonnes, also a record and up 13% on the year, a significantly larger jump than in recent years. However, these numbers could shift next month when USDA considers the impact of the new trade deal with China.

In the week ended Jan. 16, which was the day after the trade deal was signed, China bought about 3,000 tonnes of U.S. pork for delivery in 2020, according to USDA data published on Friday. That places total 2020 bookings at 302,248 tonnes, more than eight times the volume on the same date last year.

Traders are going to be closely watching these numbers in the aftermath of the Phase 1 deal, since China’s U.S. farm purchases will have to increase substantially in order to fulfill the agreement. Chinese business can often be slow in the week or two following the Lunar New Year, which begins on Jan. 25, though some of the celebrations have been cancelled due to the recent coronavirus outbreak.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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