A new research paper from US financial services group INTL FCStone has laid bare the devastating impact of African swine fever (ASF), estimating China’s pig herd has declined by 45 per cent since the virus was first discovered in August last year. Subsequent movements in the supply of pork, rising prices and changing consumer behaviours could benefit a host of UK-listed companies with exposure to Chinese pigs, including Cranswick (CWK), Genus (GNS) and Eco Animal Health (EAH).
As the world’s largest producer and consumer of pork, China’s estimated 10m tonne shortfall for 2019 is having significant implications for the entire global protein market. With official figures putting Chinese pork production down 17 per cent in the first nine months of 2019, prices in September were almost 70 per cent higher than a year earlier. Amid a tighter global supply, average pork prices across the EU reached €1.84 per kg (£1.59 per kg) at the end of October, up 35 per cent since the beginning of the year.
Chinese consumers are switching to alternative proteins, and this has pushed up other meat prices worldwide. Having already surged by 44 per cent in the first three quarters of this year, the United States Department of Agriculture (USDA) projects China’s pork imports will reach 3.5m tonnes in 2020, up 35 per cent on 2019.
That bodes well for food producer Cranswick, which accounts for over half of the UK’s pig exports to China. A July trading update indicated ‘Far East’ export revenues for the three months to 30 June were “strongly ahead” of the same period last year. Given Cranswick buys in 75 per cent of its pork requirements, higher UK and EU pork prices could moderate any gains, although its burgeoning poultry business should benefit from stronger prices.
Analysts at Bloomberg Intelligence project Chinese pork output could recover to pre-ASF levels in 2021, requiring around 20m sows – female breeding pigs – to be imported to rebuild herds. So, whilst animal genetics specialist Genus saw Chinese sales of its breeding stock pigs halve in 2019, it looks well-positioned to capitalise on farmers eventually replenishing their herds, particularly as ASF has triggered a shift away from smallholders to larger-scale, commercialised operations. Sophie Jourdier, analyst at Liberum, believes industry reinvestment will be “a major growth opportunity over the next five to ten years”.
Future herd restocking should also prove a boon for animal pharmaceuticals producer Eco Animal Health which saw adjusted cash profits from China drop by £1m in 2019. In the meantime, Eco anticipates sales growth from countries upping their pork production to export to China. With the USDA estimating Chinese poultry production will increase by 14 per cent next year, it could prove savvy that antibiotic Aivlosin is now being targeted at China’s poultry sector.
