SMM News: since the outbreak of swine fever in Africa last August in China, the world's largest pork producer and consumer, meat processing companies around the world have rushed to export more pork to make up for the growing shortage of pork in China.
Driven by strong demand, retail prices of boneless ham hit $4.31 a pound in March, the highest level since 2015. But the rise in pork prices in China is still dwarfed by the increase in pork prices in China.
The number of live pigs and sows in China has declined month by month since August last year. According to the Ministry of Agriculture and villages, the number of pigs in March fell 1.2 percent from a month earlier and 18.8 percent from a year earlier, according to the Ministry of Agriculture and villages, which monitored 400 counties. The stock of sows decreased by 2.3% compared with the previous month, and decreased by 21.0% compared with the same period last year, the biggest decrease in nearly 10 years, especially in some major producing areas.
Tang Ke, director of the Marketing and Informatization Department of the Ministry of Agriculture, predicted at a news conference in April that domestic pork prices could rise by more than 70 percent in the second half of the year compared with the same period last year, a record high.
Fighting swine fever in Africa is clearly not a short-term task. Matthew Stone, deputy director-general of the World Organization for Animal Health (OIE), said recently that China is expected to fight against swine fever in Africa for many years to come.
Further spread of the epidemic
African swine fever has spread to many Asian countries, including Laos, Vietnam, Cambodia and Mongolia, killing tens of thousands of pigs and causing billions of dollars in losses to farming and food companies. Vietnam has the worst epidemic among these countries. Since the first outbreak was discovered in February, the Food and Agriculture Organization of the United Nations recommended that Vietnam declare a national state of emergency. Since then, the rainy season and floods have intensified the spread of classical swine fever in Vietnam. It also affects the burying effect of the killed animals. About 1.7 million sick pigs, or 5 per cent of the total, have been killed across Vietnam, but the government has warned of further spread of swine fever, according to figures released by the Vietnamese government.
Vietnam has a population of about 95 million and pork accounts for 75 per cent of total meat consumption in Vietnam. It is understood that Vietnam produces about 30 million pigs, most of which are used for domestic consumption.
The focus is now on Thailand. Thailand's pig production is not as high as Vietnam's, producing more than 2 million pigs a year, of which exports to Cambodia, Laos and Myanmar account for about 40 per cent. Anan Suwannarat, permanent secretary of Thailand's Ministry of Agriculture, said it had sounded the red alert for swine fever in Africa. Thailand has also stepped up entry meat safety and quarantine measures at airports and border checkpoints to prevent the entry of African classical swine fever virus into Thailand, while stepping up efforts to ban illegal slaughterhouses and traders and impose stricter requirements on the reporting of pig deaths.
But as Dirk Pfeiffer, a professor in the Department of Infectious Diseases and Public Health at the City University of Hong Kong, says, as in other countries and regions, the risk of an outbreak in Thailand is high. African classical swine fever virus can survive in undercooked pork for a long time, and if contaminated food enters pig feed, pigs will be infected.
The long-term impact has not yet been included in the price
The increasingly tense global trade situation has heightened concerns about demand for US pork exports, and the price of (CME) lean pork futures by cheese merchants has continued to fall. CME June lean pig futures (contract code: HE) have fallen more than 13 per cent from their all-time high of 99.825 cents a pound on April 5.
The market had expected China to significantly increase US pork imports, but the trade pattern has reduced the proportion of US pork imports in China as a whole to less than 8 per cent since last year, down from more than 30 per cent in 2012. U. S. Department of Agriculture data also showed that Chinese buyers cancelled nearly 3250 tons of U. S. pork purchases in the week of May 16.
However, the World Organization for Animal Health expects the risk of the spread of African swine fever to other Asian countries in the coming months to be high. "the situation in Asia will continue to evolve because we know that the meat and meat product supply chains are seriously polluted. Operations such as residual soup feeding may not be reasonably regulated. "
"African swine fever could lead to a prolonged rise in pork prices in the United States," JPMorgan Chase analyst Thomas Palmer said in a research note. " He further said that the virus had not been contained and that it could take "at least 20 months" for pigs to be replaced in China, meaning that "demand for non-domestic pork will continue until at least 2020."
Morgan Stanley analyst Rafael Shin also believes that the pork rally has only just begun, and the long-term impact of African classical swine fever has not yet been understood by the market.
In view of the current fragile relationship between supply and demand of pork and the long-term impact of African classical swine fever not being priced, trading the (CME) lean pig futures (HE) mentioned above is a good way to arbitrage from macro trends.
Since Aug. 3 last year, its lean pig futures (HE) prices have risen 84 per cent and contract positions have risen 40 per cent to 317000 hands, according to the company. With the recent volatility of pork futures prices intensified, in May this year, the lean pig options contract set a new record of 10 historical positions, and hit an all-time high of 432000 hands on May 15.
Although the main trading volume is stacked on lean pig futures for delivery in June and July this year, the unexpected downturn in China's overall pork imports has created a rare expectation deviation between spot and forward contract prices for the futures variety. Using (CME) lean pig futures (HE), investors can short the June delivery contract and long the December delivery contract at the same time. Maximize the difference between the market price dominated by the current mood and the forward price under the influence of actual supply and demand.
Source: official website of Chicago Merchants Institute