Pork prices in China have been noted to have bitcoin-like volatility over the past four years. Rapid expansion in production capacity, combined with a state reserve program and three years of lockdowns have all contributed to this erratic move in prices. Current pork prices are on a declining trend. Analysts also note that slaughter numbers are decreasing, which could signal that Chinese pork production could soon reach the bottom of the cycle and start with expansion again. It should however be noted that post-2018 herd rebuilding resulted in a structural change in pork production in China that resulted in more input-intensive systems. With this change in place, future expansion cycles in the Chinese hog cycle are likely to have a much smaller effect on corn and soybeans than they did in 2020/2021. Our view is therefore that the effects of China’s economic re-emergence will likely only have a small effect on global agricultural commodity prices over the next 18 months.
In 2021, the export of South African agricultural products to China amounted to approximately ZAR 8 billion. This is roughly 7% of the total value of our agricultural exports and was dominated by horticultural products and beef (see figure to the left). Our view is that the reopening of the Chinese economy would result in firmer demand for products such as nuts, which are usually consumed during festive seasons. These festivities and consumption around them were limited during COVID times. Increased tourist and entertainment activities, as a result of pent-up demand, are also likely to lead to strong meat, protein, and citrus demand which could affect beef export prices favourably. As far as global agricultural commodity prices are concerned, corn and soybean prices have benefitted from the rebuilding and structural changes associated with the Chinese pig herd, over the past 5 years. Given that increased economic activity is bound to benefit meat consumption, strong pork demand could be seen as a fundamental factor supporting global agricultural commodity prices yet again.
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