Sometimes the real story you want is in a place you weren’t looking.
All I wanted to do was find out some numbers about Chinese pork production. Looks like someone buried the lede…
AgWeb ran a short interview this week with Dermot Hayes, Distinguished Professor at Iowa State University. The conversation centered on Chinese pork exports and what the pace would look like in 2017. The short answer: China imported about 3 million tons of pork in 2016, and the numbers for 2017 are around that level.
But there was a key quote about a bottleneck in the country’s booming pork production sector. [Emphasis mine]
“Cropland is getting extremely scarce, and the government does not want to go below a red line,” Hayes told AgWeb. “If you want to develop an acre of land in Beijing, you have to create an acre somewhere else. That’s putting pressure on livestock facilities, because there’s an opportunity cost associated with the ground these facilities are on. One solution is to build multi-story hog barns, but the costs and disease pressure are tremendous.”
Now, China’s farmland shortage isn’t a new story. You can use Google to find many tales of some of the absurd things happening across the country that threatens its arable land. When it comes to creating an acre somewhere else, as Hayes noted, the options are dwindling.
For example, in a quest to bolster economic growth, China poured more concrete between 2011 and 2013 than the U.S. did during the entire 20th century. And that was after urban expansion jumped by 80% in the previous decade. There are many cases of cities paving over farmland during this process, which may not have been an original intent. 
Then, there’s the pollution. Severe exposure to heavy metals could filter out a lot of once-prime land.  Back in 2013, the country said that 3.3 million hectares (8 million acres) were too polluted, which was a pretty stunning admission from this government. 
At the end of 2016, the country had roughly 333.59 million acres (135 million hectares) of farmland. That was about 191,000 acres fewer than the previous year.
This is a critical number to watch. China must have at least 307.1515 million acres of farmland, according to a 2016 mandate from the Ministry of Land and Resources.
The government red line is about 296 million acres (120 million hectares).
The country is dangerously close here.
How will China feed itself? If it isn’t self-sufficient, it will use imports to make up for the shortfall. Corn producers will certainly benefit from the trend. Of course, when it comes to soybeans, the demand for soy oil is poised to rise. And China isn’t going to slow down its soybean purchasing any time.
This declining-farmland-area trend suggests international buying will accelerate, which aligns with our long-term bullish thesis for oilseeds demand in China.
The question is how the U.S. will fend off Brazil and Argentina for dominance in this critical export market. Price will matter, but remember that the U.S. is taking steps on quality that its rivals are not bound by at the moment. Quality standards may cost more in the short-run, but they have the potential to bolster America’s reputation for soybeans in the years ahead.
Pork Exports to China Likely to Remain Stable
When asked about the potential for U.S. pork exports to China, Dermot Hayes, Distinguished Professor at Iowa State University, points out that the official statistics show a rapid decrease in the size of the inventory and sow numbers in China, but the market signals show production is stable.
“It’s really hard to get a sense for how they could be showing year over year declines in pork inventories, and yet, produce as much pork as they do,” he says.
“Cropland is getting extremely scarce, and the government does not want to go below a red line,” Hayes says. “If you want to develop an acre of land in Beijing, you have to create an acre somewhere else. That’s putting pressure on livestock facilities, because there’s an opportunity cost associated with the ground these facilities are on. One solution is to build multi-story hog barns, but the costs and disease pressure are tremendous.”
Hayes says some villages are putting farmers into high-rises so the government can knock-out the farmsteads and create new crop acres.
“The punchline for me on China is the country is perfectly comfortable importing 2 million to 3 million tons of pork per year,” Hayes says. “A lot of that is composed of variety meats that don’t depend on the hog cycle. We can always export our pigs’ feet to China, even if they have a surplus of loins. China imported more than 3 million tons of pork in 2016, and it is close to this amount in 2017.”
Editor’s Note: In the final excerpt of the interview with Dermot Hayes, he discusses other emerging markets, and the growth of exports in the U.S.