Between 2018 and 2019, African swine fever outbreaks in China profoundly impacted pig farming in the country. The Chinese Ministry of Agriculture and Rural Affairs (MARA) estimates that between detection of the first case in the country on August 1, 2018 and the end of 2019, when the activity began to recover, the swine herd fell by about 40%. As expected, the production capacity of the country’s meat packing facilities was also severely affected. Based on data from the United States Department of Agriculture (USDA), pork production in China went from 54.52 million tonnes¹ in 2017, to just 36.34 million in 2020, a 33.3% drop.
This decrease in domestic supply caused two important movements. First, swine prices on the Chinese domestic market soared. Between 2016 and 2018 one kilo of live animal was usually negotiated between RMB 10.00 and RMB 20.00, while in the last quarter of 2019 it had surpassed the RMB 30.00 and remained above this level until the beginning of 2021.
The other major consequence was the significant increase in Chinese pork imports, which made the country isolate itself as the main buyer of the product on the international market. Again using USDA data as a reference, imports of this protein source by China between 2017 and 2020 grew 3.52 times, jumping from 1.50 to 5.28 million tonnes. In addition to increasing the import of swine protein, the country has also started to consume and import more beef and poultry.
Since 2020, with the outbreak relatively under control, the Chinese Communist Party started to boost the herd recovery, helping farmers and entrepreneurs. These state programs, together with the dynamism of the Chinese economy, enabled a rapid resumption. As early as June 2021, according to MARA estimates, the country’s herd was 439.11 million pigs, similar to pre-plague numbers.
Meanwhile, 2021 also marked a change in market fundamentals. With swine supply growing exponentially, prices began to decline, going back to values in line with the reality before 2018. Between the beginning of January this year and the end of October, swine prices fell by about 54.8% in China. Based on the swine price on the Dalian exchange, there was a 48.16% decline between January 8 and October 28, from RMB 28.29/kg to RMB 14.67/kg. Interestingly, the swine futures market was implemented in China on January 8, precisely due to the need of protecting physical market agents against price volatility.
With the drop in quotes, herd recovery began to decline. In fact, MARA reports showed that between June and September 2021 the number of pigs in China declined from 439.11 million to 437.64 million. Meat production in the third quarter also fell from 13.46 million tonnes in the second quarter to 12.02 million tonnes. That is because producers’ margins are getting very tight, given the deflation of swine prices and high soybean and corn quotes. With this, herd recovery is slower, with smaller farms even getting rid of reproductive swines. According to the USDA estimate, in 2022 swine herd and pork production from China will decline again.
These movements in the Chinese swine protein sector also impact the grains market. According to USDA data, in the 2020/21 crop, China used about 73.4 million tonnes of soybean meal and 203 million tonnes of corn for animal feed, historical records for the country, since this latter corresponded to more than 70% of Chinese domestic consumption during the crop in question.
It is worth remembering that these record volumes were the result of a recovery of the country’s pig herd and measures to control the disease, such as the prohibition of food residues in animal feed. However, weakening swine prices and high grain prices on the Chinese domestic market raised questions about a possible disincentive to use corn and soybean meal in the country for ration.
