VIDEO: Inside China’s swine rebound, challenges ahead

VIDEO: Inside China’s swine rebound, challenges ahead

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Reports suggest China’s swine industry made a major recovery in 2020. International swine management consultant Todd Thurman provides an African swine fever (ASF) update and offers insight into the challenges that may lie ahead for Chinese pig producers.

As the Chinese government reports a swine herd rebound of near pre-African swine fever (ASF) levels, many are skeptical this is actually the case. Todd Thurman, international swine management consultant and the owner of SwineTex Consulting Services, provides his analysis of the Chinese swine herd restocking efforts and the issues he believes will challenge Chinese producers in the year ahead.

Video transcript: Feed Strategy Chat with Todd Thurman, an international swine management consultant and the owner of SwineTex Consulting Services

Jackie Roembke, editor, Feed Strategy: Hi everyone, and welcome to Feed Strategy Chat. I’m your host, Jackie Roembke, the editor of Feed Strategy.

This edition of Feed Strategy Chat is brought to you by WATT Global Media and FeedStrategy.com. FeedStrategy.com is your source for the latest news and leading-edge analysis of the global animal feed industry.

Today we’re joined on Zoom by Todd Thurman, an international swine management consultant and the owner of SwineTex Consulting Services. Todd’s here today to offer insights on the current ASF situation in China and its efforts to rebuild its herd. Hi, Todd, how are you today?

Todd Thurman, an international swine management consultant and the owner of SwineTex Consulting Services: I’m doing well. Thank you.

Roembke: So we’ll get right into it. After several years of devastation caused by African swine fever (ASF), reports suggest China’s swine industry has made a major recovery in 2020. Can you please share your take on what’s occurred over the last year and what you think of the current state of its pig herd?

Thurman: First, I think it’s clear that China has made significant progress in its restocking efforts. We estimated, at the height of the virus challenges, China lost about 65% of its entire herd beginning in 2019 and really accelerating in 2020. The industry has made a really big push to restock that herd and that has involved a lot of effort on the part of industry, a lot of support from government, and it really represents a huge investment in getting that herd restocked. And so they have certainly made significant improvements and significant progress towards their goals of getting that herd replaced.

But for a variety of reasons, I think that progress is probably less significant than what has been reported in the media. The number that I really try to look closely at is the pig price in China because it gives us a good idea of where we’re at in terms of supply and demand. And so, the pig price before ASF was hovering around 14 to 16 RMB per kilo. So that’s about $2.20 to about $2.40, U.S. per kilo. And now the price has really fluctuated a lot over the last several months, really, but certainly around the Chinese New Year, we’re right in the middle of the Chinese New Year holiday. And so that can have a pretty significant impact on demand and kind of play with prices.

So, understanding that, that’s a little bit of a distraction. Right now, we’re at about 28 RMB per kilo. So that’s US$4.33 compared to pre-ASF levels of US$2.20 to $2.40 — that’s roughly double where we were at pre-ASF.

Again, Chinese New Year can have an impact on these prices. As recently as a few weeks ago, we were in that 5-plus range. So, comfortably, double where we were at pre-ASF. So if we think, OK, some of the reports have suggested they’re at 80% or 90% of the pre-ASF herd — and we’re still double the prices? Kind of makes you wonder if maybe those numbers aren’t a little bit inflated.

I encourage people to really watch that pig price and that’ll give you an idea of whether that lines up with what we’re looking at in terms of some of the claims on the restocking efforts. So, while there have been some significant profit incentives and intense support from the government that is really driving the progress that we’re seeing — two very motivating factors in terms of getting that herd restocked — but there are also some pretty significant headwinds on the other side.

We hear a lot of talk about all this investment and the profit and the capital that these producers have access to because of the profit situation that they’ve been in for months and months now. And that’s all certainly true, and certainly a huge driver. But there’s also some things on the other side of the ledger that make it a little more difficult than what it might seem. And I think three main obstacles are really getting in the way of recovery at this point.

The first one, I think, is a lack of proper breeding stock. Most of the repopulation that they’ve done up until this point has been done with commercial gilts that were intended for meat production, not reproduction. And as you might expect, we’re getting kind of predictably poor results — maybe even a little worse than some of us expected. And so what I’m getting is feedback from my clients that the reproductive performance on those animals is about 25% lower than what we were getting before with proper breeding stock. And so if we think about that, that’s 25% poor reproductive performance and that’s 25% fewer pigs per sow. So obviously, that can have a significant impact and create some problems in terms of getting back to those “normal production levels.”

The second big issue that’s really an obstacle, I guess, it’s in the way is a lack of suitable sites for biosecure facilities. And this is certainly not a new issue for Chinese producers. But it is an even bigger issue now because of the focus on biosecurity. So producers are even more concerned about biosecurity than they have been in the past for obvious reasons. But the amount of available land for the sites has not changed, right? And so it’s a it’s an ongoing challenge. It’s been a challenge in China. But it’s an even bigger challenge now because of producers recognizing the realities of, you know, needing a more secure location for those farms. And it’s just, there’s just not many of those sites out there that are available.

And then, obviously, probably the biggest one hanging over the head of the industry as they’re trying to move in a restocking direction is ongoing health and the ASF virus. While it’s in much better control than it was, it’s still spreading, it’s still an issue, both the wild virus and the new variant that they’re dealing with is causing significant problems for producers. So, you know, that remains a big obstacle for restocking — especially when you combine it with this concern about being able to access biosecure sites.

I think those are probably the three biggest challenges that are preventing the industry from moving in the right direction and somethings I think we need to make sure that we consider as we evaluate where we’re at as a whole.

Roembke: Are there any other issues that Chinese producers need to have on their radar?

Thurman: Well, one of the things that we’re starting to see a lot reported in the media is this concerns about a new strain of ASF that mutated or that is possibly related to the rogue vaccines that were being used. I think we’re still early on in that and we still need more information to make an accurate prediction about how that’s going to impact the industry.

My concerns are this new variant may be spreading more widely than what we realize. It’s more difficult to accurately identify and diagnose than the wild strain of ASF, especially for smaller, less sophisticated producers. It’s also very easily confused with other diseases, most notably porcine reproductive and respiratory syndrome (PRRS). So a lot of the symptoms that we see with this new strain of the virus are very similar to PRRS and I have a lot of clients, as I’ve mentioned, that have expressed concerns about PRRS this year. It’s been a really bad year for PRRS, in addition to all these concerns with ASF.

It’s got me a little bit concerned that what we may have been observing as being PRRS related may be actually related to this new ASF variant. As long as we think about what’s going to happen over the next 12 months in terms of the recovery, I think a lot of that comes back to where we end up with this new variant, how widely it is spread, and whether or not it becomes a bigger issue than what we what we realized.

If it does, it could be a very significant obstacle and could even lead to another round of contraction and going back the wrong direction. And I’ve certainly seen some reports that are concerning in that respect, but we just don’t have enough information yet and new information is coming in slowly.

If it doesn’t get to a problematic level, then we’ll probably see continued progress towards the restocking like we’ve seen over the last several months but it’s a little bit early yet to say but I definitely have concerns about it. I’m definitely monitoring that closely. Because if it’s more widespread than what we realized, it could certainly be a significant obstacle and certainly eclipse any of the other obstacles in terms of getting the industry restocked.

Roembke: And looking ahead, what’s your sense for what might occur in the next 12 months and beyond?

Thurman: Like I mentioned before, the obvious challenges there are disease-related challenges. ASF, but also some concerns — pretty significant concerns around PRRS and porcine epidemic diarrhea (PED) virus — some of my clients in China have been dealing with some pretty significant issues there. I think health challenges have been and will continue to be the biggest obstacle facing, or the biggest challenge, facing Chinese producers.

Beyond that, the sustainable access to quality breeding stock is going to continue to be a challenge. And really, I think it’s not just access to that breeding stock, but I think a lot of people in the industry are really trying to rethink, you know, how do we provide a more sustainable, long-term solution to China’s needs around breeding stock. There are a lot of things that make sense in China that don’t make any sense anywhere else because it’s just a huge industry with half of the pigs in the world.

I think this situation where they have pretty significant dependence on international suppliers of high-level breeding stock, I think it’s something that the Chinese industry is very interested in trying to address in trying to create a more resilient, sustainable system to provide that breeding stock.

Another significant challenge that I’m hearing about from my Chinese contacts that I’m not hearing much about here is a concern actually about overstock. So it may seem a little bit strange that I say, “OK, they’re making big improvement, but maybe not as much as we thought” and then mentioning concerns about overstock, but it really is related to that performance issues that I mentioned earlier.

These animals that were bred for meat, not for reproduction. Obviously, we’re getting 25% less pigs out of those gilts than we were before so it creates this situation where you want to replace the pork, obviously, that’s the ultimate goal is to replace the pork that’s very much in demand in China has been and continues to be in demand in China. But it’s going to take more sows in order to do that, right? So now we have this concern from within the industry in China that maybe we overbuild and then we eventually, obviously, we’re going to get back to better performance when we get back to the better-quality breeding stock, you know, but that’s going to take time.

So there’s this concern about that gap between getting the breeding stock situation resolved, but then this driver of needing to provide this pork and that we run into a situation where we have a significant oversupply once we’re able to address the breeding stock situation. And then that could drive very low prices and can potentially drive massive industry consolidation in China. And so that’s something that’s very much on the minds of my [Chinese] clients — they’re concerned, they’re thinking about and I’ve certainly not heard much about that on this side.

Roembke: Excellent. Thank you so much for your time. If you’d like to know more about SwineTex Consulting Services or to contact Todd, please visit www.swinetex.com. Thank you again for your time, Todd, and thanks to everybody for tuning in.