Swine Fever Cuts Deeper Into China’s Pig Herd

African swine fever continues to ravage China’s pork industry, with new data showing sharp declines in the size of the pig herd. Chinese domestic animal prices rose sharply in the last two weeks as a result, leading to purchases of American pork despite steep tariffs. Meanwhile, new cases of the disease are being reported weekly, albeit at a slower pace.

China’s neighbors and trade partners, including the US and South Korea, remain vigilant in trying to prevent the spread of the virus, blocking imports of infected meat that can contaminate live herds. Vietnam last month reported three cases of swine fever and industry experts expect other countries to eventually report outbreaks.

The epidemic has spread to 112 confirmed cases across 28 Chinese provinces. China’s Ministry of Agriculture and Rural Affairs released February data that showed a 16.6-percent decline in the pig herd from last year and a 5.4-percent drop from last month. The government claims to have the disease under control as witnessed by the slower pace of reported incidents, but eradicating swine fever seems out of reach for now.

A lack of Chinese supply caused prices to rise across the industry. Live pig prices briefly hit 16 yuan per kilogram, the highest in over a year. Piglet prices rose even faster, gaining over 26 percent in the week ended March 15. Hog production margins are getting squeezed because of the outperformance of piglet costs and low pork prices, despite relatively cheap feed inputs. This is accelerating the consolidation and modernization of the industry as medium-size enterprises get bought out by bigger players or go out of business. The government is supportive of this transition as it would be easier to manage a few big operations with adequate biosecurity as opposed to the traditional small backyard operations.

On the other side of the world, US lean hog futures rose sharply last week as speculators covered short positions based in part on renewed optimism of export demand, after China, spurred in part by rising domestic prices, made its biggest purchases of US pork in nearly two years. In late February, US lean hog futures had dropped to contract lows as pork production data continued to exceed market expectations. The devastating effect of swine fever was confirmed by the Chinese Ministry of Agriculture data and expectations are that China will need imported pork to supplement supplies for some time. Those expectations could be tempered by China’s historical reluctance to import large amounts of pork and the ongoing trade dispute with US.

Vietnam’s first reported cases of swine fever are worrisome for any country that could be exposed to Chinese pork. US officials decided to ramp up efforts by adding more dogs to sniff out illegal pork products at airports and seaports. Border agents seized around 1 million pounds of pork from China on Friday over suspicions that it might contain swine fever. South Korea found swine fever in packed pork sausage brought into the country by a Chinese traveller, the second such incident detected in food carried by people entering the country. Quarantine operations were tightened after the outbreak in August and the Korean government asked livestock farmers to avoid areas with swine fever.

It is clear that African swine fever will be a major influence on the Chinese hog market for some time. The ramifications are starting to become evident with significant adjustments in prices, trade, security, and commercialization. The ongoing trade negotiations between the US and China add another wrinkle to an evolving market that could have long-term implications for the industry.

The chart on the left shows how China’s per capita pork consumption far exceeds other major countries. Pork is the dominant meat in the local cuisine and highlights how significant swine fever could be for the entire population. The chart on the right shows how US slaughter of hogs has been at record levels dating back to September of last year, contributing to price declines in February.