China's pig shortage could give American farmers a chance to raise money

BEIJING – China needs more pork imports than ever as the country emerges with an outbreak of swine disease – and it could become a business opportunity for American farmers if the two countries can reach a trade agreement.

African swine fever hit Chinese pig farms last year, causing a severe meat shortage that is a staple for hundreds of millions of Chinese households.

Prices have almost doubled, and publicly available data indicate that China's pork production this year is likely to fall by a few million tonnes.

In December, a kilo of pork cost about 22.50 yuan, or $ 1[ads1].46 a pound, according to Beijing-based BRIC-Agri Info. By last week, a kilo of pork had jumped to 42.46 yuan, or $ 2.75 a kilo, according to figures released by the Department of Commerce.

At the same time, one of the United States in ongoing trade negotiations demands that China buy billions of dollars of U.S. farm products. At the close of last week's negotiations with US President Donald Trump, China agreed to a "very substantial phase one deal" that includes the purchase of about $ 40 billion to $ 50 billion in agricultural products. Beijing has not yet confirmed the figure.

The phased aspect of the deal is encouraging for the Chinese side, said He Weiwen, executive council member of the China Association of International Trade, which comes under the leadership of the Department of Commerce.

According to a CNBC translation of his Mandarin-language comments, he said that the Chinese will show their sincerity by increasing purchases of US agricultural products.

However, it is a catch. It is becoming increasingly clear that Beijing wants to push the United States to remove the tariffs it has spent on billions of dollars of Chinese goods.

"If China has promised to buy agricultural products, but the United States is just delaying the tariffs instead of lifting them, then it does not make much sense to China," he said. "This is the crucial point."

China's Ministry of Commerce spokesman Gao Feng emphasized that Beijing wants the US to cancel all additional tariffs to reach a final trade agreement. Gao noted that Chinese companies are increasing their purchases of US agricultural products according to market needs and market principles, and that the two trade delegations remain in communication hoping to reach a phase deal as soon as possible.

"I think there will be more pork purchases," he said earlier this week, noting that he is not speaking on behalf of the Chinese government. "China's soybean is not that big. China can cope with that by adjusting its feed formula."

Soybeans are used as animal feed in China and a shrinking pig herd is dampening demand for oilseeds.

American pork accounted for about 14% of Chinese imports of meat in 2017, roughly the same as the year before, according to CNBC analysis of Chinese toll data provided by BRIC Agri-Info Group.

This share fell to 8% in 2018 as trade tensions escalated, falling as low as 2% in the fourth quarter of last year, the analysis showed. As of May 2019, the data on American pork showed a market share of about 8%, still well below pre-war levels. [19659002] US market share of Chinese pork imports,% by year

Source: BRIC Agri-Info, China Customs

This gap potentially creates an opportunity for American farmers, such as those from the nation's largest pork-producing state of Iowa.

China's pork shortage will likely persist for at least a few months, if not longer. On Thursday, China's Ministry of Agriculture and Rural Affairs said it expected pig prices to remain at a high level throughout the New Year holiday and China's spring festival at the end of January 2020, according to a press conference transcript from the Wind Info financial database. [19659002] The authorities have also released pork from national reserves in an effort to alleviate the shortage.

Chris Rogers, a research analyst at the Data Supply Chain Company, also pointed out that Chinese imports of US-backed agricultural goods climbed 317% year-on-year to $ 8.3 billion in August. "(The progress) suggests that Chinese purchases are already aggressively increasing even before the new deal is signed," Rogers said.

However, it is not certain that China's increased need for pork will lead to more purchases from the United States [19659002] "China will import from all its trade suppliers, including the United States, but the US price must also be competitive," he said. "There have been cases where the transaction price did not have the market's competitiveness and the company had to drop the purchase."

Chinese pork producers such as Muyuan have also seen stock prices increase as traders bet on higher profits.