ASF remains a burden in China; Covid cases creep higher; More wheat reserves for sale

African swine fever remains a major issue in China, price outlook remains bearish

African swine fever (ASF) remains a big issue for small and medium sized farms in China which do not have the resources to quickly control outbreaks and lack the funds to quickly restock after herd losses.

In a series of interviews on hog operations in Hubei province in central China conducted by a futures research company NiuMoney, ASF is still a persistent problem in China. But large companies are currently able to act quickly and limit losses to 5-10% of the herd.

However, large companies account for only half of China’s huge hog market with the rest of the industry consisting of small and medium private farms.

Meanwhile, frozen meat stocks remain large, according to several companies in the survey. Large frozen stocks could dampen any future price increases, as many companies have large stocks that could be quickly liquidated if prices rise.

Most companies are relatively bearish on the outlook for hog prices through March this year.

Some large companies are trying to reign in over-capacity by eliminating less productive sows or investing less in piglets. These factors will take time for the market to price in, but could help support prices in May or June.

Agriculture prices mixed to start the year

Prices of major agriculture products in China were mixed over the past month according to data from the National Bureau of Statistics.

In grains, rice prices fell 1.0% to 3,805 yuan/ton (US$599/ton), wheat edged 0.4% higher to 2,837 yuan/ton (US$447/ton), and corn dipped 0.5% to 2,628 yuan/ton (US$414/ton).

Hog prices dropped sharply during the month, down 14.8% to 15 yuan/kg (US$2,362/ton), while soybean meal rose 4.0% to 3,573 yuan/ton (US$563/ton), further squeezing margins for hog producers.

Despite government efforts, prices for planting additives fell marginally. Urea fell only 0.4% to 2,493 yuan/ton (US$393/ton), compound fertilizers were flat at 3,272 yuan/ton (US$515/ton).

Pesticide prices ticked 2.2% lower but remain very expensive at 78,500 yuan/ton (US$12,362/ton), up dramatically from 28,500 yuan/ton (US$4,488/ton) at this time last year.

Covid cases rise, Shanghai reports new cases

Shanghai reported five new locally transmitted covid cases late Thursday, January 13. The cases were linked to an asymptomatic imported case who had returned from the US on December 21 last year but later tested positive during their home health monitoring period.

The new local cases were reported at a milk tea shop in Jing’An district, a crowded and busy district in the center of Shanghai. Health officials have so far quarantined 304 people and tested another 31,000 residents.

Shanghai’s hospitals currently have a record number of patients who have returned from overseas and tested positive upon arrival.

Information about the type of variant has not been published yet, but given the timing of the imported case, it seems possible it could be the omicron variant which could pose a significant challenge to Shanghai. With the Chinese New Year holiday arriving soon, several large schools in the city are suspending operations early.

China reported 143 local cases on Thursday, up from 124 local cases the day before. For additional context, see our in-depth research on why omicron poses a severe challenge to China’s zero-covid policy.

Omicron is likely to have major impacts on global supply chains, including agricultural commodities.

Major car manufacturers such as VW and Toyota shut down their factories in Tianjin due to recent resurgence of covid. Some cases of omicron from the Tianjin outbreak have begun to appear in Dalian, a major port and agriculture trading hub in northeastern China.

China stockpiler to sell more wheat through auctions

Another round of wheat auctions is scheduled for next Tuesday, January 19 with another 500,000 tons of reserve wheat offered.

Most of the wheat reserves for sale is in Henan, Anhui, and Hubei provinces.

The crop ranges from 2014 to 2019 harvests. The 2014 crop accounts for 89,000 tons, 2015 is 18,000 tons, 2016 is 130,000 tons, 2017 is 141,000 tons, and 2019 is 123,000 tons. None of the crops up for auction are from 2018 harvest.

Key China takeaways from January Wasde

Brazil 21/22 soybean production estimate falls, China imports stable

USDA lower its estimates for Brazil’s 2021/22 soybean harvest, in line with market expectations that have pushed CBOT soybean futures to the highest level in nearly six months.

Brazilian soybean output is projected at 139 million tons, down 5 million tons from previous estimates, according to January Wasde.

However, USDA’s estimate for China imports is unchanged at 100 million tons for 2021/22.

China imported nearly 99.8 million tons of soybeans in 2020/21 marketing year, largely consistent with USDA estimates.

US pork export lower as China demand softens

Projections for US pork exports in 2022 were cut by 400 million lbs to 7 billion lbs (3.18 million tons) in January Wasde, citing lower demand in China.

“The pork export forecast is lowered on continued weak import demand from China,” said USDA.

US pork output was estimated 80 million lbs lower to 27.53 billion lbs (12.5 million tons).

It should not come as a surprise that the US would export less pork to China in 2022 as the latter country will have a massive domestic supply of 450 million tons of pork to digest.