To us this means ramped up US pork sales for two main reasons;

1. China has a pork shortfall due to ASF (they need pork). To live up to a $50 billion commitment China will need diversified Ag products (soybeans, chicken, beef and pork) to reach that target. Pork is a logical choice. This in itself could put US pork sales as a priority over other countries to meet the $50 billion commitment.
2. To be blunt the US has the ability with tariffs to ensure compliance of phase 1 agreement. Other countries pork supply might not be as prioritised in the coming months.

We expect that the Phase 1 will be supportive to US hog markets now with upside potential.

To put in perspective in regards to US pork exports to China;

• The last 4 weeks of data shows about 54,000 tonnes exported. This is almost three times the level of four week pork exports to China averaged in the first six months of 2019.
• Year to date US exports to China are 316,000 tonnes, up 1236 percent over 2018.
• We expect as JBS and Tyson get Ractopamine free in January, that weekly exports to China could surpass 20,000 tonnes a week, equal to about 200,000 hogs in equivalency.
• We expect Canada to return to the export levels it had prior to the June China ban. That would be another 10,000 tonnes a week to China.
• Combined US and Canada - 30,000 tonnes a week (300,000 hogs equivalency per week? Big number and would be approaching 15-20 percent of total US/Canada pork slaughter equivalency.

Other Observations:

• Cash US early weans and feeder pigs jumped $4.00 last week. Aug. Early weans $39.04,
• Feeder pigs $52.89. Break-evens on feeder pigs are in the mid 60’s.
• We would not be surprised to see cash pigs continue to climb higher.
• It appears to us last week’s slaughter weights have begun to decrease. What to watch is weights relative to slaughter.
• If kills stay up in numbers and weights decline, it tells us we are moving to lower hog supply. Likewise if weights hold but slaughter numbers decline it tells us the same thing.

Summary:

We have all been waiting for a reality on China. It appears to be happening with pork exports at record levels and new trade agreement that appears to have commitment for China to purchase more US pork.

Projected January weekly slaughter marketing’s down 300,000 head per week from recent weeks.

More demand-lower supply combined with pork cut-outs currently in 80’s, a recipe for rapid hog price appreciation.