… I believe the economic reality of the pork complex is already witnessing the shift in demand from China, you may have to just look around a bit more to see the evidence… 

 

 

Shell games and economic reality

Let’s get real: we are not going to be the first choice for pork origination in China given our trade spat.

 

Joseph Kerns, National Hog Farmer

May 13, 2019

 

The Chinese delegation has returned home in what is being described as an impasse, not a breakdown. Further talks on queue. Some in the pork production industry are getting a bit antsy to get a deal complete before they breathe easier. I am not so sure this is necessary. I believe the economic reality of the pork complex is already witnessing the shift in demand from China, you may have to just look around a bit more to see the evidence.

 

Let’s frame this one a bit and look for the smoke that may be indicative of a fire. First, a rise of pork prices in China may not be our sentinel marker of potential import demand. The attached chart shows the price of pork in China represented in their currency. Note the tight price relationship before the blowup of African swine fever in China created huge discrepancies. Lately, prices have consolidated at near 16 RMB per kilogram. When you do the math and conversions and freight considerations, 16 RMB per kilogram equates to roughly $125 per carcass hundredweight in the United States.

 

Could we live with prices remaining here and that economic incentive trickling back to our shores? You bet. We do not necessarily have to see the price of pork in China move higher to have a positive impact in our markets, we just need time for the system to trickle through and adjust.

 

The second area where I find hope is the trade relationship between Canada and China. Let’s get real: we are not going to be the first choice for pork origination in China given our trade spat. Canada finds itself in a unique situation, too, with some friction over diplomatic issues — in general, the Canadians are a pretty lovable populace that is not a threat to world peace. Note on the charts below what their recent shipments to China have done (green line) — straight up. These changes of product flow do not occur in a vacuum. While Canada has been supplying more product to China, they have been shipping less to the rest of the world, the United States included. This is just a matter of moving a finite quantity of product to its highest value of demand, the tariffs are just distorting the linear flow of product. Where there is smoke, there is likely fire. Count on it.

 

Finally, our esteemed economist, Steve Meyer, has rerun his model and shared that today’s summer values are near where they should trade in the absence of a pronounced uptick in exports off our shores. I believe we have largely discounted any trade spike into the futures market, the cash index is currently trading roughly on par with the June contract. We do not have a lot of anticipated positive news priced into futures, seems to me that the surprise could come on the upside of the market.

 

We had a report from the USDA...

 

more, including charts  [3]    

https://www.nationalhogfarmer.com/marketing/shell-games-and-economic-reality