Bringing Home the Bacon Will Cost You, For Now

Prices for agricultural commodities are surging as the world returns to normal after a pandemic-roiled year. It won't last.


By David Fickling, Bloomberg

April 27, 2021


After a run of lean years, the farm sector is facing a bumper harvest.


The Bloomberg Commodities Agriculture sub-index is up 22% this year to its highest level since 2016. Cash receipts by U.S. farms are forecast to hit $391 billion in 2021, their best result in seven years. Prices for hogs, soybeans, corn and wheat have been surging.


A push higher in food prices is to be expected as developed countries start returning to normal after a year of pandemic. Still, it would be a bold investor or farmer who predicted these levels are here to stay.


A broader look at food supply, from seed to stomach, offers one explanation. Itís conventional to consider only the early parts of that chain, in the form of crop plantings, production and stocks. From that perspective, thereís good reason for prices to be booming...


... Food demand worldwide hasnít fundamentally grown any faster than it would in other years ó but commodity prices are riding the whiplash as a subdued pandemic-hit market returns to normal.


Thatís reason to be cautious. Take pork. Lean hog prices are the best performer on U.S. commodity markets this year, but the simple explanation ó that cuts are flowing to China after African swine fever decimated the local pig herd in 2019 ó doesnít quite add up.


For one thing, Chinaís herd has more than recovered and is now the largest itís been since 2017. Wholesale pork prices are down by nearly a third this year, and margins for Chinese farmers are the worst theyíve been in nearly two years. If U.S. hogs are trading at elevated levels, itís at least as much to do with demand from Mexico, as well as from Americans eating cooked breakfasts while working from home ó the belly meat used for bacon has seen particularly strong pricing in recent months, relative to other cuts...


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