U.S. agricultural exports in 2021 are forecast to reach $157 billion, driven by record shipments to China that are expected to hit $31.5 billion. The estimate for the fiscal year ending September 30 would mark a new record for U.S. ag shipments and is +$5 billion higher than USDA’s November forecast. USDA says the hike was largely due to higher oilseed and grain export forecasts, with soybean exports pushed +$1.1 billion higher, followed by corn (+$800k) and wheat (+$700k).
The +17% increase in projected 2021 U.S. ag exports came after China dramatically increased purchases in the fourth quarter, particularly corn. For the October-December period (the fiscal year began on October 1), exports to China “reached a historic high of $14.4 billion, largely a result of strong shipments of soybeans, corn, sorghum, wheat, cotton, and chicken paws,” USDA said. In its latest projections, China will account for around 20% of FY2021 U.S. agricultural exports by value. That compares to 12.6% in 2020 and an average of 9.3% in fiscal years 2017-2019.
Of course, the big question is whether China’s buying will continue at the projected pace. One of the key factors behind China’s surging demand for grain is the country’s efforts to rebuild its hog herd as it continues to recover from African Swine Fever (ASF). But there are a lot of questions as to how well that recovery is progressing, with some signs indicating that herd levels are still lagging behind pre-ASF inventories and a breeding program that continues to be hampered by disease. Chinese officials have said the herd is 90% recovered to its level in 2017. However, sow inventory fell in January for the first time in over a year as piglet prices tripled.
According to a Futures Daily report, sows are being retired faster than usual due to ASF outbreaks and their low productivity. The report says the retention of low-quality commercial-generation sows rebuilt the herd rapidly and maximized economic returns. At the same time, it set back the national breeding program as their short productivity period means a larger number of sows have to be maintained and fed to achieve desired production levels, which continues to keep costs high while pork supplies remain tight.
Meanwhile, the industry remains heavily reliant on imported breeding stock. Typically, China imports an average of 2,100 purebred stock each year. In 2020, over 20,000 breeding pigs were imported, ten times the usual number. Most of those came in the fourth quarter, which leads analysts to believe that China’s swine producers will still need much of 2021 to re-establish the country’s core breeding supply.
Another issue pig breeders face in China is a ban on antibiotics in feed. That’s been a big problem for the industry during an especially harsh winter this year, with disease levels high and weight gain slower than normal. Outbreaks of diseases such as foot-and-mouth disease and porcine epidemic diarrhea have all been exacerbated by the harsh winter, which has apparently brought the coldest temperatures in some 70 years to major pig breeding regions. It’s estimated that as much as -15% of the herd may have been lost this winter.
Many farmers have been compelled to install expensive heating systems in their facilities, an added expense on top of skyrocketing feed prices. Keep in mind that, despite China’s efforts to transform its pork industry into mostly large-scale commercial operations, more than 80% of the country’s supplies are still provided by small farmers.
China might also have another major ASF problem brewing. Researchers have identified new strains of the devastating virus that appear to have evolved from black market ASF vaccines. One of China’s largest feed suppliers and pig/poultry producers, New Hope-Liuhe, revealed that over 1,000 sows had been infected with a mutated strain in late January. Some of the company’s contract farms also reported infections. While the strain is not as lethal as naturally occurring ASF virus, it has similar negative chronic effects such as reduced litter size. (Sources: USDA, Finance East, Bloomberg, Dim Sums)