Canadian pork producers are riding a rollercoaster when it comes to doing business with China, a speaker told delegates at the Saskatchewan Pork Symposium in a webinar.
“Will China buy more pork in the future, short term and long term?” asked Brett Stuart, outlining a key part of his presentation. Stuart is president of a U.S. company named Global AgriTrends.
The ride is currently at a high.
Canadian exports to China were up 21 per cent through September 2020 on a year-to-year basis. Approximately 60,000 tonnes of Canadian pork went to China in September. Canada’s total exports for the month were about 120,000 tonnes.
“That’s pretty easy math; roughly half of all of Canadian pork exports went to China in September,” Stuart said. “The problem is, as you are probably aware, in October China delisted some Canadian plants or forced Canadian plants to delist themselves over this belief China has that COVID is arriving on frozen imported meats.”
Delisting is a low point on the rollercoaster ride.
An estimated 65 per cent of Canada’s processing capacity is ineligible to export to China during this temporary closure, according to Alberta Agriculture and Forestry.
“Canada exports 70 per cent of production and half of that is now dependant on the most unstable trading partner in the world,” Stuart said.
Is China rebuilding its pork industry?
“There was been a mountain of propaganda poured out by the Chinese government talking about the fantastic recovery from ASF. My answer is, ‘Yes, but not as fast as they suggest.’”
The Chinese government has said pig and breeding sow stocks were back to 80 per cent of normal levels in October.
“I’m not buying that.”
Stuart said China culled at least 50 per cent of its swine herd in an attempt to control ASF. It doesn’t seem logical that it could be rebuilt this quickly, he said.
“Keep in mind China’s are half of the world’s swine herd, so you can’t have this happen and not have an impact.”
One of those impacts is hyper-inflation.
Stuart said consumers have been paying 100 per cent or more for over a year for their pork. That’s at retail, he said. Hog profits in China averaged $350 a head for 11 months.
“So, they are expanding. Absolutely they are expanding. I don’t know what we would do if we saw those margins in the U.S. We would have hogs running down the street in Des Moines, Iowa if saw $350 a head profit.”
Stuart said there are currently 42 million hog farmers in China. Eighty-five per cent of their pork production comes from farms of less than 1,000 head, he said.
He said the government is moving toward large-scale, publicly traded farms.
The philosophy is simple.
“Build, build, build sow units; breed your market gilts. It doesn’t matter, just have something giving birth on those farms. It doesn’t have to be genetic stock. Sell weaner pigs, make a fantastic profit . . .”
He said the expansion is visible on the skyline with high-rise hog barns. Stuart said he has heard of one being 13 storeys high.
“I heard one of those high-rise barns had broken with ASF. That would be an absolute disaster. So, the risk it there, but the returns are also there. High risk, high return.
“I think the government looks at this and says, ‘Problem, what problem?’ Hyperinflation has not led to social tension or instability. It is making these big companies very rich; it prevents the government from having to subsidize anyone.”
Despite claims of strides being made at home, Stuart said China is still allowing massive imports.
“Their job has been to try to prevent overseas pork inflation. And they have done a pretty good job of doing that in the U.S. and Canada. EU pork inflation a year ago kind of got away from them and Brazilian pork inflation is very high right now. And then they work on the next problem, whatever it is.
“I don’t think the government is terrified of this. You don’t hear it in their policy; you don’t hear them saying, ‘How are we going to get enough pork? Let the prices run, let the inflation run and this problem will ultimately fix itself.’”
Stuart thinks the expansion plan is flawed, because there is a lack of investment in finishing. He said for every sow unit built, at least six or seven finishing spaces are needed.
“The finishing is still being done by small farmers. The peasants are doing most of finishing, either under contract or under purchasing of those weaner pigs. It is the most capital intensive and the least profitable and it’s the highest risk. This is where ASF continues, but why are they not building finishing?”
It’s because of the profits, he said, answering his own question.
“If you make a bunch of money, build another sow barn. You can make $150, $200 a head profit on little weaner pigs. Just crank them out, secure that sow unit.
“So, they are still relying on the unstructured, massive industry to do their finishing. That’s the bottleneck here. These small farms lack bio-security.”
He estimated that China was short 24 million tonnes of pork in 2020.
“How much is 24 million tonnes? All the traded pork in the world, all of the exported pork, is about eight million tonnes, or it was. This year it will be 10 million because of how much China bought.
“Imports are going to be bigger and bigger for years to come. I think they have realized how affordable global pork is now compared to Chinese pork. I don’t think it’s going away.”
Stuart said if he is wrong, there will be disastrous consequences for producers.
“If I am wrong, global meat and protein producers are about to feel an abrupt adjustment. In two years, China bought an extra $21 billion in protein. If they recover next year, and some how they miraculously solve ASF, there is $21 billion of protein that has to go somewhere else.
“That would be an absolute disaster. If that were the case, we should all be in total contraction while they expand.”
That said, Stuart doesn’t think he is wrong.
Stuart also talked about the bleak situation in Germany, where ASF has entered the country through wild boars.
“Germany is screwed, and I know that is harsh. They are out of the global markets for now. Once you have ASF, even in a wild boar, there is no mercy on this planet.”
He said ASF got into Germany when the virus “jumped the river” between Germany and Poland, and entered the wild boar population. There are four clusters of ASF in Germany, Stuart said.
Germany supplied 14 per cent of China’s pork imports.
He said if Germany can’t stop the spread of the virus and it continues to move west, it will be devastating for pork producers in countries such as Spain, Belgium and Netherlands.
As an example, China imported a record high of 90,000 tonnes of pork from Spain in October.
Germany and Poland are two of the top 12 exporters in the world. Now, both have ASF in their countries.
He cautioned Canadian producers.
“ASF is alive and well. We can’t sleep too easy at night and say it’s never going to get here.” •
— By Cam Hutchinson
