China's pork imports to increase in 2016 May 29, 2016

Report Highlights:

China leads the world in pork production and consumption and is also a major destination for pork exports. Import demand is supported by Chinese pork processors utilizing lower cost imports to produce products for the domestic market. To reflect the increased imports, post adjusted 2015 imports upwards to 1 million tons and further increased the 2016 forecast to 1.3 million tons. Post increased the 2016 beef consumption forecast to 7.5 million tons, up from the previous forecast of 7.4 million tons, and revised the 2016 beef import forecast upwards to 750,000 tons to reflect strong consumer demand.

CATTLE

Production

Calf crop will slightly increase in 2016

Post forecasts 2016 calf crop above 49 million, slightly above 2015, based on continued strong consumer demand for beef. Continuing strong demand has resulted in calf crop steadily increasing since 2014.

Import

Live cattle imports down sharply in 2015 but will slightly increase in 2016

Post has adjusted 2015 live cattle imports to 125,000, a decline of more than 40 percent from 2014 estimates, based on tight global supplies, particularly from China's main suppliers, Australia, New Zealand and Uruguay. Imports are forecast to recover to 150,000 head in 2016. The rise in imports is aided by the inclusion of Chile as a new and lower cost supply source for China in 2015.

BEEF

Production up slightly in 2016

2016 beef production is forecast at 6.785 million tons, based on stable domestic prices that continue to attract investment into the beef production sector. Despite increased investment and consolidation in beef sector, supplies of beef cattle for slaughter remain tight and dairy cattle are culled to balance the demand. Production cost inefficiencies such as high labor and feed costs are just a few of the constraints that continue to plague the industry.

Consumption

Demand to remain firm in 2016

Post increased the 2016 consumption forecast to 7.5 million tons, up from previous post forecast of 7.4 million tons. Beef consumption is supported by increasing consumer preference for beef and increasing number of consumers willing to spend money on beef.

Imports

Post revised 2015 beef imports upwards to 663,000 tons and increased the 2016 forecast to 750,000 tons because domestic production will be unable to satisfy increasing domestic demand. Australia will remain the main supplier; a position bolstered by its free trade agreement entered into force at the end of 2015. China's tariffs on Australian beef products will be eliminated over the next nine years. Australia's exports will be constrained by its tight supply and hence its market share will shrink in 2016. Imports from South American countries are forecast to increase, in part because China has lifted its 2012 BSE-related ban on Brazilian beef.

In general, imported beef is RMB 10-20 ($1.67 to $3.30) per kilograms cheaper or approximately 15 to 30 percent cheaper than domestic beef.

Key Players Comparison Summary

Note: The OIE (World Organization for Animal Health) has recognized that the United States' BSE‐related surveillance and mitigation measures are effective and appropriate, for both food safety and animal health. In 2014 the OIE placed the United States in the same risk category as China. Unfortunately, China's ban on United States' beef, beef products, and live cattle imposed in 2003 due to the detection of a BSE-positive animals remains in force.

SWINE

Production

Post adjusted the 2015 swine herd to 451.1 million head and revised the 2016 swine herd down 1.4 percent to 445 million head, due to decreasing numbers of sows. Sow inventory continued its downward trend, according to official statistics. Although the breeding herd is shrinking, the number of piglets per sow per year is increasing as a result of better genetics that help offset the declining sow numbers.

In 2016, swine production in coastal provinces, where land is generally more expensive, will be under more pressure to close, especially as local governments seek more profitable uses for the land. Rigorous enforcement of environmental laws in these areas is one method employed to encourage these operations to close or move to other regions.

Government support for swine production changed in November 2015. The hog to corn ratio breakeven indicator decreased from 6:1 to 5.5:1, with the aim to reduce government intervention and create a market oriented system.

PORK

Production

Post lowered 2015 production to 54.87 million tons to reflect larger than expected reduction of sows. Post further revises downward the 2016 production by 2.5 percent to 53.5 million tons. Although feed prices are expected to decline in 2016, driven by anticipated drop in corn prices, many swine operators (especially smaller ones) do not have access to capital to expand their herds to take advantage of the lower feed costs and high pork prices.

Consumption

Post adjusted 2015 consumption downward to 55.7 million tons and lowered the 2016 consumption 54.6 million tons based on continued high prices. Overall pork consumption is driven by rising population growth. Although pork consumption is in relative decline vis a vis other protein sources such as poultry and fish, it will remain the traditional meat protein in the Chinese diet for the foreseeable future.

Imports

Post adjusted 2015 imports upwards to 1 million tons and further increased the 2016 import forecast to 1.3 million tons. Imports from European Union countries account for 80 percent of the market share. Imports from the United Sates are constrained by China's zero tolerance policy for ractopamine, a feed additive that promotes lean muscle growth in swine. However, toward the end of 2015, China relisted 16 establishments from the United States that participate in ractopamine free program. The relisted establishments are now eligible to export to China.

Imported meat mainly goes to the food processing industry. For example, Shineway, a major Chinese meat processor, established a meat processing factory in Zhengzhou at the end of 2015. This factory will use imported meat to process into American style bacon, ham and sausage to sell in the domestic market. Processors of imported meat can also benefit from the recent establishment of inland ports in the city of Luohe (located in Henan province) and Chongqing city (located in Chongqing province). These are the first two inland ports eligible to import meat directly. In addition to providing a more direct access to possessing facilities located in China's interior, the ports are less costly compared with their coastal peers.

Exports

Post revised its 2015 export estimate upward to 231,000 tons and adjusted the 2016 forecast to 230,000 tons. Relatively higher pork prices will offset the depreciation effect of RMB and thus makes Chinese pork more expensive than competing countries. China mainly exports to Hong Kong and Japan.

Changes to China's Corn Policy

China announced changes to its corn policy that will bring some relief to its livestock industry that has long suffered from high feed costs. Anticipation for lower corn prices was buoyed by an announcement on March 28, 2016, by the China's National Development and Reform Commission that the temporary corn reserve purchase policy in northeastern provinces and Inner Mongolia would be replaced by a new mechanism “market acquisition" and “subsidy," intended to reduce government-held stocks. The government did not disclose any details on how the “market acquisition" purchases would operate after the cancellation of the floor price in these regions.

The announcement had an immediate impact on corn futures when on March 29, 2016 the new crop future price “CORN-1701" plunged to RMB 1,425 per ton ($ 5.5 per bushel) from RMB 1,590 ( $6.21 per bushel) in the Dalian Commodity Exchange market. Unspecified new subsidies will be created to help support farmers. Despite the possibility of lower feed costs, the Chinese livestock industry still faces numerous hurdles such as stringent environmental regulations and lack of capital investment in the sector.