Is China's Economic Slowdown a Signal of What's Ahead?qtwebhostdemo43235435
This year is going to challenge pork-exporting countries around the world. The principle reason for this is a broad-based weakening in global economies which will weaken total demand for meat and likely marginally shift some beef and pork meat demand to cheaper poultry. Weak economies mean weak purchasing and economizing on food purchases, especially meat.
A look at China’s economy
The bellwether nation leading us into a weak 2019 is China, where a steep decline in the rate of growth of Gross Domestic Product (GDP) was recently announced. The size of this reported economic slowdown has not been experienced in almost 30 years. Factory output of durable goods (cars, washing machines, tech etc.) has fallen sharply due to lackluster demand. It is reported that the Chinese real estate market in many cities is substantially overbuilt, trapping apartment and condo owners in recent purchases now selling for substantially less.
China is the key influencer of the wider Asian economic activity and its slowdown is rolling into Indonesia, Vietnam, Korea and even Japan. This is expected to keep any growth in meat imports uncertain to unlikely, despite an ever-enlarging African swine fever (ASF) geography that further complicates forecasts.
Pork demand in China
Unfortunately, Chinese demand for pork may weaken due to falling economic activity that’s causing lower current incomes and uncertain future incomes. We can expect a temporary shunning of pork until its safety is assured and believed by Chinese consumers. Herd liquidations will flood the market with cheap pork for many months. This, combined with weak demand, will keep imports lackluster.
Poultry is not big in the Chinese diet but is growing quickly among the more health-conscious young generations. Global poultry is expected to top record 2018 production this year, giving price-sensitive consumers temptations to substitute out of higher cost beef or problem pork for lower cost chicken. Global pork production is expected to be at record levels again this year barring the escalation of ASF or its migration to new production areas or major producing countries.
Will U.S. demand be enough?
The big bright spot for U.S. pork producers is the continued strength of our economy. Record levels of employment and gains in real income have been small but are breaking a long-term period of stagnation. This is helping fuel record domestic meat consumption.
Resurgence of the popularity of low-carb diets in the form of the keto diet is gaining significant traction. But unlike the Atkins rules, the keto diet proscribes smaller total portions of protein and a remarkable 70%+ of the diet coming from fat.
Unfortunately, optimistic domestic demand is offset by what appears to be big challenges and lower expectations for U.S. pork export sales in 2019 as compared to last year due to the sinking world economy.
The Federal Reserve took back a sizeable piece of their multi-year easing of interest rates which had driven real rates to close to zero in response to the 2008 market collapse. This caught many producers by surprise as their adjustable loans and lines of credit recently notched up a tick or two.
Gaining back the ability to provide liquidity to the market during the next major downturn through lowering interest rates is a critical tool in maintaining U.S. growth and prosperity, and it is hard to lower rates below zero.
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