”In the pork business, I cannot remember such a spike in prices in such a short period,” says Guillermo García from Talca (Maule Region, Chile).
García is in charge of Coexca, a pork production company. He explains that in three weeks, one of the main future indexes of pork on the Chicago Exchange went from USD $45 to USD $80. Investors reacted to the news coming from China, or at least to the rumors, we should say.
Early in 2019, Chinese authorities admitted that almost 10% of the pig mass in the country had been slaughtered since the detection of the first African swine fever outbreak in August last year.
In spite of the first assessments from the government, there were reports of a more serious epidemic than had been admitted. Stories of closed breeding sites accumulated until April, when Rabobank allotted numbers to the fall in China’s pig production: 30%. The blow of African swine fever could be the biggest agricultural news of 2019.
“Even though meat exports to China may increase, they will not be able to compensate for the fall. There is a 10-million-ton “hole” that cannot be covered, neither by local production nor imports,” says Juan Carlos Dominguez, Executive President of ChileCarne, which brings together Chilean pork and poultry exporters.
The Chinese produce and eat more than half of the world’s pork; hence, the spike in the Chicago Stock Exchange. The shockwave impacts other areas and the price increase could expand to poultry, beef and salmon, among other proteins.
For ordinary citizens, checking their supermarket bill in the coming months will not be pleasant.
In any case, the feeling is that we are just beginning to grasp the change global agriculture will experience.
Situation in China
With a consumption of 55 million tons per year, China is the leader in terms of demand. To put it in perspective, Chile would need to allocate all of its pork production for 110 years in order to cover 12 months of Chinese consumption.
“There are modern companies in China but there is also an important backyard production,” explains Juan Carlos Domínguez.
The industry representative says that small producers are a major setback when eradicating African swine fever. The disease does not affect humans but it is deadly for pigs and boars. There is no vaccine and after the first outbreaks, the entire farm must be slaughtered. The current outbreak probably started in Georgia, in Eastern Europe.
As April ends, the world is beginning to assess what is coming. The boom in exports to China is not harmless. It means leaving other markets short, so by simple law of supply and demand, the price of pork will increase in those countries in the coming weeks.
Chile will not get away unscathed from this phenomenon. Currently, a kilo of live pigs in China is sold for CLP $1,600, while in Chile it only costs CLP $920. During the course of the year, that price gap should tend to reduce.
The issue is not just about Chilean companies aggressively exporting to China. Around 30% and 40% of the pork consumed in Chile is imported. A large share comes from Brazil, a country which is likely to find other markets more appealing in 2019.
Although it is still not felt in consumers’ pockets, institutional buyers who know about the changes in the market are already worried about securing raw materials in anticipation of the spike in consumption around the Chilean National Holidays. According to the Financial Times, the Chinese Ministry of Agriculture expects a 70% increase in pork prices during the second half of the year.
Source: Revista El Campo (in Spanish)