U.S. Brings Home the Bacon

Swine fever and pork shortage in China are boon to American meatpackers, farmers


Pigs are disinfected at a farm in Jinhua, China, amid an outbreak of African swine flu.

A deadly disease sweeping China's hog barns is reinvigorating the fortunes of U.S. meat companies.
 Outbreaks of African swine fever have led to the culling of millions of hogs in the world's top pork market. That is shrinking global meat supplies and boosting prices. The shift is welcome to U.S. meatpackers and farmers, whose hogs remain free of the disease, after a tough patch of low prices driven by record U.S. meat production and China's tariffs on U.S. meat.
 The disease isn't dangerous to humans, scientists say, but causes skin lesions, organ failure and near-certain death in pigs.
 China's agricultural ministry estimated recently that there were 19% fewer hogs in the country in March than a year earlier. Losing that much pork output in the country that is home to half the world's pigs would cut the global meat supply by some 6% on an annualized basis, according to Heather Jones, an analyst with investment firm Vertical Group.
 “That's unprecedented,” Ms. Jones said. “There's just not enough supply out there to replace this.”
 U.S. pork producers like Ron Prestage are eager to fill part of that gap. Last month, Mr. Prestage's company, Prestage Farms Inc., opened a $309 million pork-processing plant in Iowa. Throughout 2018, Mr. Prestage watched nervously as tariffs from China and Mexico depressed U.S. pork prices, at the same time that expansion in the U.S. meat industry drove domestic pork production to a record 26.3 billion pounds.
 The picture changed late last year, when Mr. Prestage began fielding calls from Chinese buyers asking when his plant might be able to start exporting pork. He said he met with Chinese officials last week. The recent surge in pork prices—carcass prices have climbed 40% in the last two months—means his family's plant now is likely to turn a profit in 2020, he said.
 “It's going to help us get a leg up quicker than we expected,” Mr. Prestage said. Combined, China and Hong Kong bought 495,637 metric tons of U.S. pork in 2017, before tariffs that took effect last year sapped that flow to 351,774 tons in 2018, according to data compiled by the U.S. Meat Export Federation. Now, China's purchases in the past two weeks alone have totaled 101,200 metric tons, U.S. Department of Agriculture data show, even as the tariffs remain in effect.
 Tyson Foods Inc. last month secured approval for two plants in Iowa to begin shipping pork to China, the first such approvals for U.S. pork facilities since January 2016, according to USDA data. Virginia-based Smithfield Foods, owned by China-based WH Group, is reconfiguring some plants to produce more boxed carcasses to ship to China.
 A global drawdown in meat supplies will also boost poultry processors like Pilgrim's Pride Corp., Sanderson Farms Inc. and Tyson, analysts said. Chickens' shorter lifespans allow producers to expand production quickly, and Chinese consumers are expected to supplement some of the pork they would have bought with poultry.
 “They are going to import much more protein this year, period,” said André Nogueira de Souza, head of U.S. operations for Brazilian meatpacking giant JBS SA, on a March 29 conference call. China's taste for U.S. pork is also expanding into new cuts of meat. Chinese importers have long bought U.S. byproducts like feet, hearts and heads, but buyers now are placing orders for entire hog carcasses, U.S. meat-industry officials said.
 That shift could drive up prices for U.S. staples like bacon and sausages, analysts said. Since the start of the year, per-pound prices have more than doubled for pork trim, used to make sausage, according to USDA data. Prices for pork bellies, used for bacon, climbed 21% before easing back late last week. Those increases have yet to translate into higher prices at restaurants and grocery stores, but consumers could pay more for pork later this year if the hog culling continues, said Christine McCracken, executive director of meat research at Rabobank, a top agricultural lender. U.S. meatpackers like Smithfield, JBS and Tyson are also spending more to purchase pigs from farmers. U.S. hog farmers in March earned an average $8.47 per pig, their first positive monthly return since October, according to estimates from Iowa State University.
 Filling China's pork gap could also boost grain companies like Archer Daniels Midland Co., Bunge Ltd. and Cargill Inc. Archer Daniels CEO Juan Luciano said hog farmers in the U.S., Europe and Brazil are preparing to expand their herds to supply more pork to China, requiring more corn, soybean meal and other feed ingredients supplied by grain merchants.

African swine fever outbreaks in China have been pushing pork prices higher recently…


Sources: USDA (pork prices); Iowa State University (profit/loss); SIX (stocks)

BY JACOB BUNGE AND KIRK MALTAIS

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