Even a casual consumer of news these days is aware of this summer’s drought and its effect on retail food prices—not to mention that half of all Americans are living through the searing heat and its debilitating effect on household lawns and gardens and obviously by extension, on farmland productivity.
One of the key barometers that has received plenty of news coverage is the current sell-off of livestock, due to soaring feed prices and shrinking forage availability, and the predicted impact on meat prices later this year and early 2012, when supplies will be significantly curtailed.
What’s gotten a lot less attention is the impact that rising corn and soybean prices are having internationally, especially for the world’s largest pork producer, China, which produces 50 million tons annually, about one-half the world’s pork.
In fact, declining hog herd numbers in China are stoking fears that a sharp increase in pork demand could drive consumer prices higher next year, according to a lengthy report in The New York Times.
“Faced with sluggish domestic demand and the record cost of fattening animals—the result of a steep rise in the prices of corn and soybeans as drought grips the top exporter, the United States—Chinese hog producers are being forced to sell their herds,” the Times story stated. “China’s food price cycle is driven in large part by pork, the country’s staple meat.
And while it is in abundance now, in about six months, meat stocks are expected to fall as a result of the sell-off, resulting in a surge in prices.”
The story quoted analysts who echoed the same concerns that U.S. ag economists have articulated in this country.
“If you look at corn and soy meal prices in China, the cost of feeding animals is already reaching a record,” Jean-Yves Chow, a senior feed industry analyst at Rabobank in Hong Kong, told the newspaper.
“We expect pork supplies to decline by early next year if profitability remains depressed, resulting in higher prices, which will fuel food inflation.”
Obviously, rising food prices are problematic for any country’s economic stability. Food inflation affects everyone, and causes a ripple effect exceeded only by a comparable rise in energy prices.
According to the experts, inflation is one of China’s biggest economic concerns—as it is here—especially given the possibility that rising prices might lead to social unrest, as would be expected in this country.
But that’s where the comparisons stop.
Five years later
In China, the country’s economic planning agency ordered the stockpiling of frozen pork to counteract an anticipated supply squeeze when consumption peaks during the Lunar New Year next February.
“China holds reserves of pork, both live animals and frozen meat, to help stabilize domestic prices during extreme price fluctuations,” the Times story stated.
“The stockpiling is also used to try to curtail food inflation and steady its domestic [pork] industry.”
That’s partly the result of the devastating experience of 2007,when a combination of rising demand, high feed prices and a severe disease outbreak among the country’s hog herd caused retail pork prices to rise more than 50%, according to USDA’s Foreign Agricultural Service.
The result was severe food inflation that alarmed China’s economic planners and provoked a significant reaction by the central government.
In the USA, the prevailing mentality is that when global supply and demand volatility batters the farm economy, the marketplace will sort out the winners and losers.
Farm price supports, emergency commodity purchasing and other government interventions require significant political leverage to provoke anything other than a token response.
Meanwhile, corn and soybean futures are climbing to all-time highs as the worst drought in half a century has depressed Midwest harvest projections.
China, which imports 60% of global soybean production and is the world’s sixth-biggest corn importer, is facing the prospect of its pork industry taking a huge hit due to soaring feed costs. In fact, it’s already happening.
“We are seeing depressed margins leading to hog and sow liquidation among the small producers in various parts of the country,” Rabobank’s Chow told the Times.
No one is suggesting that China’s distressing record of government oppression is anything Americans should emulate. But that country’s aggressive response to the threat to its key agriculture sector and its primary protein source makes our national hand-wringing look pathetic by comparison.
When it comes to our national security, no expense can be spared, whether it’s maintaining a global military footprint or erecting massive intelligence and surveillance infrastructure.
That’s the cost of staying secure, we’re told, and objections are tamped down by our collective sense of urgency.
It’s time that food production and commodity pricing merited similar treatment.
The opinions expressed in this commentary are solely those of Dan Murphy, a veteran food-industry journalist and commentator.
Source: drovers.com
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