Meat sales during the quarter—the peak season due to Lunar New Year holidays—were also sluggish as China struggles to mount a strong and sustainable post-COVID economic bounce, undermining consumer confidence.

Pork output fell 0.4 per cent from a year ago to 15.83 million tonnes, the first quarterly drop since the second quarter of 2020, data from the National Bureau of Statistics (NBS) showed on Tuesday.

Some 194.6 million hogs were slaughtered, a fall of 2.2 per cent.

Chinese hog farming companies in China had, from late last year until February, ramped up slaughter amid an outbreak of African swine fever and due to excessive supply in the market that prompted prices of pigs to plummet.

China, which consumes about half of the world’s pork, has encouraged the companies, which have aggressively expanded in recent years, to reduce hog numbers.

It has also lowered this year’s national target for normal retention of breeding sows to 39 million from 41 million.

The supply of hogs in China is, however, still expected to exceed demand due to high numbers of productive sows and a reluctance by companies to destock after making large investments.

Cash prices in the world’s biggest pork-producing nation were at about 15.2 yuan (C$2.90) per kilogramme on Monday, according to data from consultancy MySteel.

That’s up from 13.5 yuan in late February – a level well below the average production cost of 16 yuan per kg.

China’s pig herd size at the end of March was down 5.2 per cent from the previous year to 408.5 million heads, the NBS data showed. The sow herd at the end of February was down 6.9 per cent at 40.42 million, separate data from China’s agriculture ministry shows.

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Pork producers have been losing money as pig prices and consumer demand have struggled at a time of high costs for labor and other expenses.

Smithfield, owned by Hong Kong’s WH Group 0288.HK, said it will terminate employees who support its dealings with farms that raise hogs under production contracts. Layoffs may total about 70 employees, or up to one third of the 210 workers in Smithfield’s Utah hog production operations.

The contracts are with finishing farms that raise hogs to slaughter weight, Smithfield said in an email to Reuters on Wednesday, adding that it will continue to operate company-owned sow farms in Utah.

Analysts said pork producers need to cut the number of sows, or female pigs used to reproduce, to return to profitability more quickly.

“Our industry and company are experiencing historically challenging hog production market conditions,” Smithfield CEO Shane Smith said in a Tuesday statement.

Smithfield in October said it would shut a pork plant in Charlotte, North Carolina, after previously confirming it would permanently close 35 Missouri hog farm sites. Last year, the company said it would close a California plant and reduce its herd in the Western U.S.

Smithfield needs such cutbacks to remain competitive, Smith said. The company cited an “industry oversupply of pork, weaker consumer demand and high feed prices” as challenges, though futures prices for corn Cv1 used for livestock feed last month fell to their lowest level in nearly three years.

U.S. meat companies also grappled with excess chicken supplies this year, and face dwindling cattle inventories and a law requiring more space for livestock in California.

Tyson Foods TSN.N, the biggest U.S. meat company by sales, has shut chicken plants.

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An outbreak of African swine fever, which infects only pigs, has decimated China’s herd, pushing Chinese pork prices to record highs and increasing the need for meat imports.

However, coronavirus — which has killed 563 people so far — is keeping consumers and workers at home in China, delaying purchases at stores and restaurants and slowing the unloading of products at ports.

The disruption exasperates Beijing’s efforts to ensure adequate meat supplies and the plans of global companies like Tyson and JBS to profit from the shortage.

The dual disease outbreaks also highlight the problems facing import-dependant China in its efforts to feed its population.

“There’s been disruptions at the ports,” Tyson CEO Noel White said on a call with analysts. “That has skewed shipments, receivals.”

China has increased meat imports from the U.S., Europe and Brazil as African swine fever has killed up to half its pigs since August 2018.

Beijing pledged to increase purchases of U.S. farm goods in an initial trade deal last month, raising traders’ expectations for more pork shipments. China also eased restrictions on U.S. beef imports and in November lifted a ban on U.S. poultry meat shipments.

But coronavirus has clouded the outlook for Chinese demand, White said, as cities have been quarantined. He said Tyson is still shipping meat to China and has orders on its books.

“Once we get past the coronavirus incident, whenever that might be, I do think there is going to be very strong demand,” he said.

Meat is shipped to China in refrigerated containers that must be plugged into electrical outlets once they are offloaded to keep products cold.

Importing companies normally receive containers as they arrive, freeing up space for others. But several Chinese ports are at capacity on space for refrigerated containers and outlets because few receivers are picking them up, said Peter Friedmann, executive director of the Agriculture Transportation Coalition.

Shanghai and Xingang have reported 100 per cent utilization of available plugs, he said.

Meat shippers are also scrambling, selling to other countries or shipping to other Chinese ports, Friedmann said.

“Things are really getting bad over there,” USA Poultry and Egg Export Council president Jim Sumner said.

— Reporting for Reuters by Tom Polansek and Karl Plume in Chicago.

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China said on Tuesday it wants the Canadian government to temporarily stop allowing meat shipments to China after bogus pork export certificates were discovered.

The move disrupts a lucrative pork trade for Canada, the world’s third-biggest shipper, and comes as China turns to meat imports after African swine fever killed millions of its pigs.

Canada and China are also embroiled in a dispute after the chief financial officer of Huawei Technologies was detained in Vancouver on a U.S. arrest warrant.

“It’s a big loss, a huge market,” said Martin Lavoie, CEO of Canada Pork International, an export marketing group. “You have alternative markets but (replacing) the volume of China, that’s the challenge.”

China bought $310 million worth of Canadian pork from January through April, making it Canada’s third-largest market by value. It is Canada’s largest pork market by volume.

Canadian pork exporters are likely to find other buyers, such as Mexico, the United States and the Philippines, but may have to accept lower prices, Lavoie said. Canadian pork processors include Olymel, HyLife and Maple Leaf Foods.

Buyers for specialty products such as pig feet may be hard to find, Lavoie said.

In the short term, more European pork is likely to flow into China, he said. The European Union is the world’s biggest pork exporter, according to the U.S. Department of Agriculture.

The United States, the second-biggest global pork exporter, is unlikely to benefit, since it is subject to a 62 per cent Chinese tariff, said Brett Stuart, president of U.S. advisory group Global AgriTrends.

Canadian pork that would normally ship to China could instead end up in the United States or competing with U.S. pork in Japan or South Korea, he said, but added the disruptions are unlikely to affect the direction of world prices.

“Global pork prices are moving sharply higher because of this surge in demand from China. It’s just beginning,” Stuart said.

In Canada, though, farmers fear that the prices they receive may dip. Industry officials are concerned China’s action may cost the sector $10 million per week, said Manitoba hog farmer Rick Bergmann, chair of the Canadian Pork Council.

China’s move also applies to beef, but Canadian sales to China amounted to less than three per cent of Canada’s beef exports last year.

An investigation by Beijing into Canada’s export certificates revealed as many as 188 “counterfeit” veterinary health documents and the existence of “obvious safety loopholes,” according to the Chinese embassy in Canada.

Ottawa has called in the RCMP to investigate, but the Canadian government is not convinced the fraudulent meat shipments come from Canada.

— Reporting for Reuters by Rod Nickel in Winnipeg; additional reporting by Tom Polansek in Chicago.

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Wholesale pork prices, known as the cutout, rose by $1.01 on Monday to $62.93/cwt for carcasses, according to U.S. Department of Agriculture data (all figures US$). On Tuesday, prices retreated slightly to $62.59, although that was still above the average of $61.50 for the last five days.

The gains were a turnaround after hog and pork prices slumped as farmers ramped up production and U.S. agricultural exports to China slowed. China last year imposed tariffs on imports of U.S. pork due to the trade war between Washington and Beijing.

“The market was looking for a bottom in the cutout,” said Altin Kalo, agricultural economist for New Hampshire-based Steiner Consulting. “It thinks that it probably saw one.”

Chicago Mercantile Exchange April lean hogs rose 0.575 cent to 57.9 cents/lb. and reached its highest price since Feb. 19. The market has rebounded from a contract low of 52.25 cents, set Feb. 20.

The U.S. is working on a trade agreement with China, which could increase demand for agricultural products such as pork. But U.S. President Trump will reject a deal that is not perfect, U.S. Secretary of State Mike Pompeo said in a media interview.

Traders are monitoring the trade talks and also the spread of African swine fever in Asia.

The highly contagious disease, which is incurable in pigs but harmless to humans, has spread rapidly across China since August, and has been found in seven areas in Vietnam, the state-run Vietnam News Service reported.

In the cattle market, most-active CME April live cattle settled up 0.475 cent at 128.825 cents/lb. The contract has retreated from a high of 130.45 set on March 1.

Traders are reluctant to buy cattle futures aggressively because index funds are in the process of rolling positions from the nearby April contract into deferred month contracts, said Mike Sands, president of MBS Research.

However, cold U.S. weather continues to underpin the market, he said. Cattle typically do not put on weight as quickly in cold weather because they consume feed to generate body heat.

“That’s still going to show up in terms of further erosion in carcass weights,” Sands said.

CME March feeder cattle futures lost 0.325 cent to settle at 140.875 cents/lb.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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Forecasts for more cold, snowy weather in the middle of the country kept traders on edge after recent storms slowed transportation and weight gain in herds. Cattle typically do not put on weight as quickly in cold weather because they consume feed to generate body heat.

“These cattle are still going to be fighting winter conditions well approaching the middle part of March,” said Dennis Smith, a commodity broker for Archer Financial Services in Chicago.

Most-active Chicago Mercantile Exchange April live cattle settled down 0.075 cent at 129.85 cents/lb., after setting a contract high of 130.1 cents/lb. on Wednesday (all figures US$). The contract traded just below its high, reaching 130.05 cents on Thursday, and ended above its session low of 128.9.

June live cattle ended flat at 120.15 cents/lb. and reached a contract high for a fourth consecutive session.

“The market closed pretty strong even though it’s unchanged to slightly lower,” Smith said.

March feeder cattle futures lost one cent to 142.875 cents/lb.

Feeder cattle futures may come under light pressure on Friday from a U.S. Department of Agriculture report that was issued after the closing of trading on Thursday and showed an increase in the size of the nation’s calf herd, Smith said.

There were 94.8 million cattle and calves in the U.S. as of Jan. 1, up from 94.3 million a year earlier, according to USDA’s semi-annual cattle inventory report.

Beef cows, at 31.8 million head, were up one per cent from a year ago. The 2018 calf crop was estimated at 36.4 million head, up two per cent from the previous year.

“We’ll be well supplied with cattle this year on the feedlot side,” said Rich Nelson, chief strategist for Illinois-based broker Allendale.

In the swine market, CME April lean hogs, the front-month and most actively traded contract, rose 0.275 cent to 55.875 cents/lb. The contract has recovered slightly since hitting a low of 52.25 cents last week on concerns about large hog herds and low pork prices.

“Oversupply remains the driving force,” Nelson said.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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Pork prices have taken a beating from the Sino-U.S. trade war, with China’s retaliatory tariffs affecting demand from the South Asian country, which is the world’s biggest pork importer.

Mississauga, Ont.-based Maple Leaf said it expects continued uncertainty in the fresh pork markets, citing trade tensions, potential for increased supply and outbreaks of African swine fever in China.

Beijing has reported more than 100 outbreaks of the disease since August last year. African swine fever does not harm humans but is deadly to pigs and there is no vaccine or cure.

Maple Leaf, which owns the Greenfield Natural Meat, Prime and Schneiders brands, said sales rose about two per cent to $893.9 million in the fourth quarter, while gross margin fell eight per cent.

Excluding items, the company earned 29 cents per share, missing analysts’ average estimate of 34 cents, according to IBES data from Refinitiv.

Maple Leaf’s net earnings slumped 80 per cent to $11.9 million, or 10 cents per share, in the quarter ended Dec. 31, as the company recorded a $40.7 million charge related to its investment in a poultry facility in Ontario.

In November, Maple Leaf said it planned to set up a $660 million poultry processing plant at London, Ont., with investments from the federal and Ontario governments.

In its year-end outlook Thursday, Maple Leaf said it plans about $400 million in capital expenditures in 2019, including about $250 million on the London plant’s construction.

The company also said it plans to continue to build up “leadership” in both sustainable meat and refrigerated plant-based proteins in 2019.

Work to that end includes transitioning all sows under company management to open housing systems by 2021, and continuing to build its presence in both Canada and the U.S. in RWA (raised without antibiotics) retail and foodservice meats.

In plant-based proteins, where Maple Leaf owns the Lightlife and Field Roast brands, the company said it will target “consistent double digit-growth in sales supported by new product innovations and investment in capacity to meet demand.”

— Reporting for Reuters by Debroop Roy in Bangalore. Includes files from Glacier FarmMedia Network staff.

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Lean hog futures also rose in a turnaround from a slide to contract lows last week.

Traders focused on the wintry weather as forecasters predicted more snow will fall across portions of the U.S. Plains and Midwest this week.

Snow and cold already hampered transportation in recent days and slowed weight gain in cattle herds, which consume feed to generate body heat.

“As long as the weather is restricting things, there is going to be pretty good support,” said Matt Wiegand, a risk management consultant and commodity broker for FuturesOne.

Most-active Chicago Mercantile Exchange April live cattle advanced 0.7 cent to 129.925 cents/lb. and set a contract high of 130 cents/lb. (all figures US$). March feeder cattle futures gained 0.95 cent to 143.45 cents/lb.

CME April lean hogs, the front-month and most actively traded contract, rallied 1.825 cents to 55.725 cents/lb.

Wholesale pork prices, known as the cutout, also edged higher. The carcass value was $60.96/cwt, up from $60.92 on Monday and $59.01 on Friday, according to U.S. Department of Agriculture data.

“You’re not seeing a lot of hogs make it into town with the conditions that we have seen out there,” Wiegand said.

The hog market was oversold after the April contract dropped to a low of 52.25 cents/lb. on Jan. 20, traders said. Short-covering helped lift prices, they said.

“You’ve got that market low enough that you are going to see some bottom pickers,” a broker said.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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U.S. President Donald Trump said on Sunday he would delay an increase in U.S. tariffs on Chinese goods thanks to “productive” trade talks. On Monday, Trump said he may soon sign a deal to end the trade war if U.S. and Chinese negotiators can bridge their remaining differences.

Such progress should help support hog futures because a resolution could increase U.S. pork exports to China, traders said. Beijing imposed tariffs on imports of U.S. pork last year as part of the dispute.

However, large numbers of hogs and low prices for pork weighed on the futures market, according to analysts.

“In the short term, there’s a fair amount of pork around us,” said Altin Kalo, agricultural economist for New Hampshire-based Steiner Consulting.

Chicago Mercantile Exchange April lean hogs, the front-month and most actively traded contract, fell 1.55 cents, to 53.9 cents/lb. (all figures US$).

U.S. farmers have ramped up hog production due to low prices for grains used for feed and as processing companies have built new plants to slaughter swine in recent years.

On Friday, the U.S. Department of Agriculture, in a report issued after the close of trading, said total supplies of frozen pork at the end of December were 505.287 million lbs., up from 490.047 million a year earlier.

The large supply eclipsed worries about cold temperatures and snow slowing the transportation of livestock to processing plants, said Brian Hoops, president of broker Midwest Market Solutions.

The wintry weather still helped boost futures prices for cattle, which typically do not gain weight as quickly in cold weather because they consume feed to generate body heat.

“A winter snowstorm should be friendly for hogs and beef both, and it was certainly friendly for the beef,” Hoops said.

Traders were also buying cattle futures and selling hog futures in spread trades, Hoops said.

“The fundamentals suggest a bigger supply of hogs, and the funds are going to keep slamming the hog futures and buying cattle against it as a spread,” he said.

Most-active CME April live cattle advanced 0.35 cent, to 129.225 cents/lb. March feeder cattle futures lost 0.4 cent, to 142.5 cents/lb., while deferred-month feeder cattle contracts ended higher.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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Farmers have ramped up hog production due to low prices for grains used for feed and as processing companies have built new plants to slaughter swine in recent years.

“We’re just pricing in record weekly production totals that are at burdensome levels,” said Terry Roggensack, founding principal of The Hightower Report.

Chicago Mercantile Exchange April lean hogs ended down 3.55 cents at 52.975 cents/lb. and set a contract low of 52.25 (all figures US$). That was the lowest price for any front-month contract since October 2018.

The market extended losses after dropping by its daily limit of three cents on Tuesday. The limit temporarily expanded to 4.5 cents on Wednesday and will revert back to three cents on Thursday.

“The main reason for the break was we’re running five to seven per cent above a year ago in slaughter,” Roggensack said. “We should be one to three per cent.”

In the cattle market, traders focused on cold, snowy weather in the U.S. Plains that is expected to slow weight gain in herds and disrupt the transportation of livestock to slaughterhouses.

Temperatures dropped below freezing in Montana and the Dakotas on Wednesday morning, while below-normal temperatures prevailed across the remainder of the nation’s mid-section, according to a weather report from the U.S. Department of Agriculture.

Cattle typically do not gain weight as quickly in cold weather because they consume feed to generate body heat.

“Demand is strong and winter weather is creating more complications at the feedlots,” said Kevin Van Trump, president of U.S. consultancy Farm Direction.

Chicago Mercantile Exchange February live cattle rose 0.45 cent to 128.325 cents/lb. April live cattle was up 0.75 cent at 129.2 cents/lb.

March feeder cattle futures gained 0.125 cent to 143.875 cents/lb.

Cash cattle traded at about $125/cwt in Kansas and Texas and $124/cwt in Nebraska at the end of last week, according to traders.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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