If pigs can fly, they can dive too
Stoic Capital
ASF is a notifiable disease in the EU and should be reported to the World Organization for Animal Health. The disease remains a major concern for infected and non-infected countries, as there is no effective treatment and effective vaccines are not still available. The virus is debilitating with mortality rate of up to 100%. The transmission of ASF is a major point of contention with a plethora of causes ranging from ticks, free-range management to unethical feeding practices. Whatever it is, the impact was felt globally following the August 2018 outbreak in China which decimated herds.
The 36% YoY drop in swine production numbers and 28% fall in ending herd numbers in 2019 led to a corresponding fall in pork production that stretched over into 2020 from 2019 with a cumulative fall of 35%.
The frenzied rally in domestic prices that ensued led to concerns over hoarding, profiteering and finally government intervention and an frenetic pace of imports. The follow on investment flow into the livestock industry, particularly pig and pork production lead to an even more dramatic recovery in production numbers and a ballooning in hog weights. Equally dramatic, was the collapse in pork prices that took place this year from over production and easing availability.
According to the National Bureau of Statistics, China, swine numbers increased 29.2% YoY for Q2 2021, and 5.6% QoQ while pork production for Jan-Jun 2021 stood at 27.15MMT, an increase of 35.9% from the year before. Conversely, cumulative imports for pork into China for the period Jan-Jul 2021 have shown a distinct decline YoY of 18.6%, reflecting a weakening reliance on imports.
Ultimately, the buck stops at the US again. With China consumption garnering over 43% of global pork consumption, the focus inevitably turns to the US, South America and Asia to meet this demand and likely in that order. The US exports over a quarter of onshore pork production and stands pat with a 30% market share of global exports. With US per capita availability for pork remaining stable over the past century amidst a trend towards plant based meats and a growing consumption of chicken – the most cost efficient feed-conversion option – US pork production is likely to remain geared towards exports.
And as the obvious key liquidity portal for hedging solutions, it’s worthwhile noting the persistent skew in volatilities in CME Lean Hogs with downside risk trading at a stubborn premium. While the risk seems blatantly skewed/skewered towards the downside, it might not be too far off from the probably truth in the months ahead.
Learn more about what we do at Stoic Capital Singapore or keep a lookout for our next feature article or drop us an email at if you’d like to discuss some trading ideas!
Disclaimer
Please refer to our terms and conditions for the full disclaimer for Stoic Capital Pte Limited (“Stoic Capital”). No part of this article can be reproduced, redistributed, in any form, whether in whole or part for any purpose without the prior consent of Stoic Capital. The views expressed here reflect the personal views of the staff of Stoic Capital. This article is published strictly for general information and consumption only and not to be regarded as research nor does it constitute an offer, an invitation to offer, a solicitation or a recommendation, financial and/or investment advice of any nature whatsoever by Stoic Capital. Whilst Stoic Capital has taken care to ensure that the information contained therein is complete and accurate, this article is provided on an “as is” basis and using Stoic Capital’s own rates, calculations and methodology. No warranty is given and no liability is accepted by Stoic Capital, its directors and officers for any loss arising directly or indirectly as a result of your acting or relying on any information in this update. This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
