Global Pork Update & 2020 Outlook - Brett Stuart, Global AgriTrends, from the 2020 Missouri Pork Expo, held February 11 - 12, 2020, Columbia, MO, USA.

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2. February 12, 2020
Brett Stuart
Global Pork Update
& 2020 Outlook

3. Outline
• ASF is Now a Global Game Changer
– China
– Beyond China
• U.S. Pork Exports
– Where is China in the U.S. Hog Markets?
– Phase 1 Deal
– Export Forecasts
• Watchlist
– ASF HERE, Coronavirus, ASF vaccine, etc.

4. ASF Update and Outlook

5. Why ASF is
A Global Protein Game Changer?
• The virus is very strong (hard to kill)
• Mortality rates > 95%
• There is no vaccine
• 75% of the world’s hogs are now threatened
– (EU and Asia)
• Chinese pork supplies = 20% of total global
meat/poultry
• The losses in China and Vietnam are massive

6. How Bad Is it?
• Chinese gov’t
– Oct inventory down -40%
– Oct slaughter down -46%
– Now claiming increases…
• Private sources (feed, pharma, equip,
genetics)
– Sales are down -70% to -80% from a year ago
• Our estimate
– At least -65% of the herd is now gone
– Roughly one-third of the global swineherd

7. China: Current Situation
• Hog/pork prices stable at very high levels
• ASF losses continue, new cases around China
• Coronavirus
– Major wildcard; record prices, logistical issues
• Protein imports soaring (beef, pork, poultry)
– US$2.1 billion per month
• Now buying 9% of U.S. pork production weekly
– Tyson, JBS to increase volumes

8. Coronavirus
• Spread potential remains uncertain!
• Stats:
– Chinese population infected: 0.003%
– Chinese deaths: 0.0001%
– Mortality rate 2%
– Spanish influenza (1918) 10%
• And killed more than 50 mil
• China lockdowns
– Food concerns
– Port concerns

9. Source: JCI
U.S. hogs
at 9.5
rmb/kg

10. Various sources

11. Various sources

12. Source: AHDB

13. Source: China MARA

14. China’s Shortages Are Real
• Social media reports of shortages
• Contacts “on the ground”…
• Gov’t actions:
– Direct provincial governments to
increase pork output
– Released 200,000+ mt of frozen pork from
storage (5 ounces/capita)
• Food inflation is now soaring
• But consumer pressure is different there…

15. Source: China NBS, MARA, JCI

16. Source: China MARA

17. Source: USDA, AgriTrends forecasts

18. Source: AgriTrends, shipped-weight equivalent

19. Chicken is NOT the Answer
Source: JCI

20. China: Is Recovery Possible?
Government Optimism
• Optimism is all they have
• Edicts to local officials
– “Do everything possible to ensure adequate supplies”
– “Stop the declines as soon as possible”
• News media ordered to write articles restoring
confidence of pig farmers by reporting on
effectiveness of government policies and giving
examples of successful recovery
• Restore “normal” supplies in 2021?
– 70% recovery (30% imports)
• 30% = 16 mmt (2x global pork trade today)

21. China: Recovery
Government Plan
• Rush to build farms (subsidies)
• Local govt’s ordered to subsidize equipment
• Loosen land restrictions for new farms, waive approvals
• Issue ASF culling payments promptly (rewards)
• Subsidized loans for breeding/finishing farms
• Build 120 “demonstration farms”
• Pork-based poverty alleviation projects
• Ease up on environmental regs, no more “pig free counties
or cities”
• Collect manure at centralized sites for fertilizer
• Collection points for diseased carcasses
• 100 new slaughter demonstration enterprises
• Lots of “urging”, “promoting”, and “creating”
http://dimsums.blogspot.com/2019/12/chinas-plan-to-restore-pork-supplies-by.html

22. China Hog Farm Structure
Source: UN/FAO Animal Health Risk Analysis, March 2018
85%
<1,000

23. China Recovery: Will it Succeed
• Yes – eventually, with enough government
support, creation of a new biosecure swine
sector…
• Without a viable vaccine? Doubtful

24. EU ASF Update
• Belgium seeing success in ASF eradication
efforts
– No farms broke, only wild boars
– Aggressive actions against wild boars
– Wild boar findings falling
• ASF now 6 miles (13 km) from Germany
– What does the world look like with German pork
banned from key markets?

26. Source: TDM, AgriTrends

27. Where is China in the
N. American Hog Market?

28. Source: USDA

29. U.S. Hog Markets and CHINA
• U.S. pork production (Oct-Now): +8%
• U.S. pork cutout (Nov peak +26%): +1%
• U.S. ham prices: +23%
• U.S. pork exports up +17% in Q3
• Up +18% in Q4 November
• China is having an impact on the markets.
• The hog market "problem" is TOO MUCH
PORK!

30. Source: TDM, AgriTrends

31. Source: USDA/FAS

32. Source: USDA/FAS weekly export sales data (shipments to China and Hong Kong),
USDA FI weekly pork production

33. Source: USDA/ERS, AgriTrends forecasts
11% of US prod

34. 2020 Pork Forecasts - China
Key assumptions
• Retaliation tariffs eliminated (via waivers)
• Prices remain above 26 rmb/kg
• No games (plant delistings, etc)
The Math
• Total U.S. pork exports increase +2.0 bil lbs
• U.S. production +968 mil lbs (Wasde)
• Net supplies decline -1,032 mil lbs
– (-3.2 lbs/capita carc wt, -2.4 pounds retail wt)
– -4.7% per cap supply equates to 9.4% price increase
• BUT – we may be wrong, exports could exceed those
levels
– Pork supplies were down -2% in 2014, prices rose +25%
– Cuts could get volatile (bellies, hams)

35. Global Price Indicators: ASF
Year over Year Price Changes (%)
China hogs +170%
China pork +115%
China broilers +21%
China piglets +273%
China beef +21%
EU hogs +45%
Spanish picnics +70%
German hams +55%
Brazil hogs +35%
Brazil cattle +44%
U.S. hams +44%
U.S. pork cutout +6%
U.S. beef cutout -1%
U.S. imported 90% lean beef +30%
ASF Waves of Inflation
Early January

36. Global Implications - ASF
Expansion Opportunities: Global Protein
China EU U.S. Brazil
Land
Capital
Permitting
Feed
Labor
Markets (China)
Green: less constrained
Red: more constrained
Source: Global AgriTrends

37. Summary and Watchlist

38. ASF Vaccine?
• I’m not a scientist – but I’ll paraphrase one:
– Those vaccine candidates were grown on macrophage
cells; that cell line cannot be used for commercial vaccine
production. Adapting that to a suitable cell line is
complicated and not guaranteed. Also, note that USDA has
not yet transferred this technology to a commercial
partner to do the needed work ahead of licensing trials.
• I have had many conversations with pharmaceutical
researchers who suggest that even when an effective
ASF vaccine is found, it could take 2+ years to get it
through testing, approval, and into commercial
production.

39. What If We Find ASF in N. America?
• Export markets close instantly
– Some may regionalize within weeks
• Canada, Mexico, U.S.?
– At least a couple weeks to investigate and
determine if it is contained
• But for weeks we have WAY too much pork
– US exports 23% of production, Canada 68%
• And many export markets stay closed
– Even with ASF in China? YES
• Massive culling is not the risk; we could
manage ASF. Exports are the risk

40. Key Items to Watch
• Coronavirus growth
• China port issues (short term)
• U.S. weekly pork exports to China
• China live hog prices
• U.S. weekly slaughter levels
• ASF spreading beyond China
– Germany
– Anywhere!

41. 2020 Outlook
• High volatility = have a plan
– Futures options premiums outweigh risk of
contracts
• Risk of upside price moves
• Risk of ASF here…
• Serious market risk in Q3/Q4
– U.S. capacity issues
– Banking on China working out…
• Potential for profits and expansion
– Again, banking on China…

42. 42
Brett Stuart
bstuart@globalagritrends.com
303-803-8716
Thank You
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