USDA adjusts global swine supply and demand data

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Porto Alegre, April 23, 2021 – Last week, USDA released its global supply and demand report for the meat industry and brought adjustments to the figures for 2020 and 2021. The focus of the report is on data from China, the world’s largest consumer and importer, highlighting that the Asian country is fundamental to the dynamics of several export markets, such as Brazil, the United States, the European Union, and Canada.

The first point that drew attention is that USDA discarded information released from the Beijing department’s attaché in March. USDA reduced its pork production forecast and increased Chinese imports for 2021 compared to its January report and the attaché’s March report. For Chinese production in 2021, USDA now estimates 40.50 million tons, which is 11.45% more than 36.34 million tons in 2020, noting that last year’s figure was also adjusted (in January, the estimate was 43.5 million tons for 2021 and 38 million tons for 2020).

There is still a large supply gap in the Chinese market, considering that the production of 2018, the year of the appearance of the first cases of ASF, stood at 54 million tons. Therefore, Chinese imports must continue strong but starting to decline as early as 2021, albeit slightly. For pork imports from China, USDA indicated 4.85 million tons (up from the 4.62 million tons estimated in January). Imports are 8.16% lower compared to 5.28 million tons in 2020.

China’s General Administration of Customs announced last week that the country imported 1.02 million tons of meat in March, including pork, beef and others, the highest monthly volume since January 2020. Imports in the first quarter of 2021 reached 2.63 million tons, up 20.8% from the same period last year.

The initial herd of matrices in 2020 has been adjusted from 27 to 31 million head by USDA. The 2021 herd was indicated at 38.50 million head, above the 34.25 million head estimated in January. The number was far from the 42 million head indicated by the Beijing attaché in March, but clearly the herd of matrices is advancing rapidly, with some problems in this process. According to USDA, the low productivity of the herd and the continuous challenges with diseases must hold back production this year.

Attention now shifts to news related to ASF in China, which is quite contrasting between international agencies and the Chinese government. The prices of live pig and pork are in a sharp decline in the interior of China, which can be explained by different perspectives, including the advance of the recovery of the herd and production, the strong rhythm of imports, and finally the fear of ASF inside of the country, which would be leading farmers to accelerate the sale of their animals, leading to a greater pork supply in the local market.

China’s Ministry of Agriculture and Rural Affairs reported another decline in the price of live kilogram and pork in the interior of the country in the second week of April. The live kilogram ended the week quoted at 24.49 yuan on average, down 29.63% from the end of 2020. Pork fell by 21.20% in the period, to 40.70 yuan per kilogram. The sharp fall in domestic prices is a negative factor for the expansion of animal housing, taking into account that the production cost has surged in China, following corn prices, pressuring the margins of the activity. The September futures contract for live pigs in Dalian was priced at 26,920 yuan per ton last Friday (16), which converted into a kilogram is 9.9% above the current average price of the Chinese physical market. The January 2022 contract, on the other hand, was pegged at 23,670 yuan per ton that day, showing that the agents’ perspective is that the Chinese herd will continue to grow, despite ASF-related news.

Reports of ASF outbreaks and sharp losses in the Chinese herd by private companies are advancing, reaching around 20% in the north of the country, for example, which is not shown in OIE reports, at least not in that magnitude. If the herd losses caused by ASF are really severe as cogitated thus far, the pork price curve may suffer even more at first, with the acceleration of the sale of light animals by farmers, in an attempt to avoid losses with the incidence of the disease. Later, the curve would reverse with a reduced herd and farmers counting on a smaller number of animals available for negotiation. In an opposite scenario, with less abrupt losses, the trend is for prices to continue in a deflationary process while the herd and slaughter move forward, leading to a continued decline in imports in 2022.

In view of the uncertainties surrounding the real Chinese situation, given the disparity of information about ASF, the market must remain attentive to the export data of the main exporting players, as well as the prices of the Chinese domestic market and live pig futures in Dalian.