High feeding margins in China are motivating Chinese pork producers to feed market hogs to heavier weights. This is impacting the market in many ways, says Arlan Suderman, chief commodities economist at INTL FCStone.
“With feeding margins around $400 a head, it gives incentive to put as much weight as practically feasible on, taking them to 20% above previous levels. That means though, that while the dead hogs don't eat corn and don't eat soymeal, live hogs are eating more corn and more soymeal because the efficiencies of gain decrease at those higher weights. So you have to feed more corn and more soymeal per pound of gain which is helping offset some of the lost demand from the dead hogs,” he says.
With the hog numbers down 60 to 70% from pre-ASF levels and pork production down 45 to 50% in China, he says feeding hogs to heavier weights is helping to meet more of China’s pork needs. But they are still faced with a huge deficit of pork. Feeding hogs to heavier weights is not going to change their import demand. Even if China uses all of their available infrastructure, they're not going to be able to import enough meat, he says.
What’s the Impact on U.S. Farmers?
For the U.S. farmer, Chinese hogs being fed to heavier weights means that soymeal demand doesn't drop off as much as what it would otherwise.
“U.S. farmers also have some opportunities to import U.S. corn if we get a trade deal to blend with the lower quality corn that they have in their reserves,” Suderman says. “It also opens the door for the possibilities of dried distillers grains and solubles as well.”
China fed quite a bit of DDGS until China put anti-dumping tariffs on DDGS a couple of years ago, he says.
“Even with the high tariffs, there was enough demand that we were still seeing DDGS start to flow back over to China again until the trade war started and the door was shut again,” he says. “But we are hearing some chatter come out of China that even with ASF, there's still some interest in U.S. DDGS.”
ASF will also alter China being the primary consumer of soymeal in the world, he says. The demand for soybean meal will move to more diverse areas of the world, which in the long run, will be healthier for the soybean industry, he believes.
“You never want to become so dependent on one customer. We're seeing the reasons for that now,” Suderman says. “You lose that customer and your prices plummet.”
To follow the spread of ASF and learn more about the virus, visit porkbusiness.com/ASF.
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