U.S. meat prices forecast to rise

Swine-flu outbreak shifting inventory to China, analysts say

Customers buy frozen pork at a market in Hong Kong on May 16. A cull of swine in China, in an effort to control an outbreak of African swine fever, will lower supply in global protein markets and lead to higher meat prices, according to a report released Wednesday.
Customers buy frozen pork at a market in Hong Kong on May 16. A cull of swine in China, in an effort to control an outbreak of African swine fever, will lower supply in global protein markets and lead to higher meat prices, according to a report released Wednesday.

The African swine fever outbreak in China, and the demand for protein it has created, will lead to food-price increases in the United States later this year, according to research by Dutch financial services company Rabobank.

Analysts with Rabobank expect food costs will rise this summer with pork and chicken prices affected the most. Beef would be affected least. If a trade agreement with China is reached, price gains could accelerate, Rabobank said.

U.S. consumers can expect to see increases at grocery stores and restaurants in the short-term, but they will "probably see the impact more in 2020," Rabobank analyst Christine McCracken said.

By how much is still in question. McCracken said it will vary by product and protein type.

Steep trade barriers on exports to China have muted U.S. price increases so far. The Chinese charge a tariff on imported U.S. pork of 62% and use of the feed additive ractopamine is banned in China. The Chinese have banned imports of U.S. poultry since the 2015 avian influenza outbreak. Beef exports have dwindled because of a ban on the use of feed additives in cattle.

Regardless, U.S. meat and poultry should end up in China directly, or indirectly, through other countries that supply China, according to research published Wednesday by Rabobank. All animal proteins are poised to face increased export demand, resulting in lower domestic supplies and higher prices.

"It will be better for producers of U.S. chicken and beef, as they should get more value for their animals, but it will be worse for consumers," McCracken said.

The U.S. Department of Agriculture predicts China's pork imports will rise 41% this year over last to 2.2 million tons. There is no end in sight as "outbreaks continue to emerge, and evidence mounts that China will be unable to eradicate ASF in the near-term," it said in a recent report about African swine fever.

In response, domestic meatpackers such as Smithfield and Tyson Foods are increasing pork production to meet market demand.

African swine fever has spread throughout Southeast Asia and eliminated 30% of China's pork supply, or about 16 million tons, according to Rabobank's research. This is more than America's annual pork production (12 million tons) and double the total global trade in pork (8 million tons).

The USDA raised its outlook for domestic pork production 3.5% to 28.3 billion pounds. Average hog costs will rise more than 10% to 60 cents per pound this year over last, it said in a report last week. Outlooks for beef and broiler chickens also rose.

There is no clear path on how to meet China's demand, but meatpackers across the world stand to benefit from increased exports in the coming quarters, analysts said.

"I think it will affect all the proteins," Noel White, president and chief executive officer of Tyson Foods Inc., said last week at a conference in New York. The U.S. can produce and export only so many hogs, "which means that it's likely going to be supplemented by other proteins," he said.

Already, White said, Tyson was seeing increased shipments from the U.S. and other parts of the world to close the gap. China's cold storage inventories could be depleted as soon as summer's end.

"I think it's really about that point in time that I think that we'll start seeing the meaningful escalation in pricing," he said.

China's tariffs on U.S. commodities were not a concern to White.

"Whether it's shipped from other countries, whether it's Brazil or Europe or anyplace else, that will create a net difference and it will create a void someplace else," he said. "So the fact that we wouldn't ship directly to China in a meaningful way is not overly concerning to me."

The timing of it all makes for an interesting summer, said Jason Apple, an animal-science professor at the University of Arkansas, Fayetteville. U.S. farmers are late planting the corn and soy used for feed; Mexico and other meat-producing countries are increasing production to supply China, and U.S. meat demand is not declining, he said. These factors coupled with a season when U.S. meat prices typically start to rise "is very interesting," Apple said.

"Is it going to be more than $1? No, probably not," he said about the expected price climbs during meat-eating season. "But I think it will be noticeable enough."

Business on 05/23/2019

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