China Says Worst to Come for Pork Supplies on Overseas Squeeze

(Bloomberg) --

China expects the country will suffer its worst pork supply squeeze yet as the coronavirus pandemic roils output overseas, threatening imports by the world’s biggest consumer of the meat.

The “toughest time” yet for supplies in China will be in the second quarter of this year, said Yang Zhenhai, the head of the agriculture ministry’s animal husbandry bureau. Pork prices may surge to before peaking in September, he said.

China is still grappling with its own output after being hit by African swine fever in 2018. The disease slashed the country’s hog herd by about half, prompting government officials to warn that there wasn’t enough pork in the world to fill the supply gap. Meanwhile, prices surged to a record despite efforts to import as much as possible from overseas, helping push up the country’s inflation measure to the highest in years.

Now, Covid-19 is leading to closures in meat producers abroad as workers fall ill or die from the virus. Plants have been closed in Iowa, the U.S.’s top hog state that accounts for about a third of pork supply, while Smithfield Foods Inc., the biggest producer, said it’s shuttering some plants including its giant Sioux Falls slaughterhouse in South Dakota. China imports mainly from Europe, U.S. and Brazil.

China has been on a mission to increase domestic supplies despite its own outbreak of the coronavirus, with the government broadening financial incentives to encourage private firms to increase output. It also went on a buying spree, importing a record amount of pork in March.

However, the country’s efforts to normalize hog output by the end of 2020 could face hurdles as breeding costs have risen and most small-to medium-sized farms may not be active in restocking. The agriculture ministry’s Yang reaffirmed the national target and said the country will boost production of poultry and others as a substitute for pork.

Although supply may improve in July, national holidays in the second half of the year could push up demand, Yang said. Pork prices, which had started to retreat after farms increased sales and the government released the meat from state reserves, are likely to continue higher until around September, though year-on-year gains may narrow, he said. In the fourth quarter, prices should drop versus a year earlier, he said.

©2020 Bloomberg L.P.

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