African swine fever sparks global meat shortage
Chinese imports of pork, beef and chicken jump, driving up prices around world
A dramatic decline in pork production due to African swine fever in China is contributing to a global shortfall in meat supplies that is expected to drive pork, chicken and beef prices higher into next year.
China’s total swine herd has declined by 45 per cent since the virus was first detected in the northeastern city of Chenyang last August, according to analysis from US financial group INTL FCStone. The disease has now spread to every province in the country.
Though global beef and chicken production is forecast to rise marginally over the coming year, analysts say it will not make up for the fall in global pork production caused by swine fever, increasing prices around the world.
Data from the United States Department of Agriculture suggests that in 2020 there will be a roughly 6.4m tonne fall in total global chicken, pork and beef production, compared with this year — a record fall for these meats. Some analysts think the actual figure could be much higher.
“We haven’t seen a meat supply shortfall like the one African swine fever has produced going back 30, 40, 50 years in the data,” said Justin Sherrard, global strategist covering animal protein at Rabobank. “We’re truly in extraordinary times.”
As the disease spreads into Vietnam, Mongolia, Cambodia and beyond, the price of meat is expected to continue rising, driving expansion from big meat exporters such as Brazil, Argentina and the US
The price of pork has risen 170 per cent compared with the same time last year, according to data from China’s Ministry of Agriculture & Rural Affairs. Chicken prices have increased 40 per cent and beef 20 per cent.
“Pork is going up so everything else is getting dragged along for the ride,” said Darin Friedrichs, senior Asia commodity analyst at INTL FCStone. Pork is the largest item in China’s consumer price index, so significant shifts in the price have sent inflation soaring.
“We haven’t seen this really aggressive meat price inflation until the last couple of months, and it’s likely to continue rising into 2020,” said Mr Friedrichs. “A lot of people in Europe and South America aren’t gonna be very happy about how expensive their meat has gotten.
“There’s really no precedent for this. We’re seeing capacity try to get built up to serve the Chinese market but there’s a pretty large time lag on that.”
Some analysts expect pork shortfalls in China to be far greater than the USDA’s estimates. Simon Quilty, an independent meat and livestock analyst, forecasts a 54 per cent drop in Chinese pork production in 2020, causing a global protein deficit closer to 18m tonnes, “with little to no ability for global meat production to respond with increased global exports”.
In China, trade flows point to a 20 to 30 per cent increase in beef and chicken imports through 2019 and 2020 due to the reduction in pork production, according to analysis by Citibank. This also presents an opportunity for producers of meat substitutes, which have been eyeing up the Chinese market as a key battleground for expansion. “China has clearly become the engine room of global protein demand,” said Mr Quilty.
Tight beef supply has been exacerbated by a drought in Australia — previously one of the biggest global beef exporters — which has reduced cattle numbers. At the same time, dry weather in the EU this past year has caused a decline in the region’s cattle herd.
The main countries that stand to gain from constricted cattle supply are Argentina and Brazil, according to Mr Friedrichs. Brazilian president Jair Bolsonaro travelled to China last week to conduct trade negotiations with President Xi Jinping, whose country is forecast to import a record amount of beef next year — partly driven by a growing middle class that views eating beef as a status symbol.
During the visit, the two leaders firmed an agreement that Brazil would increase beef exports to the protein-hungry nation, causing environmentalists to raise alarm bells that increased cattle rearing will drive higher levels of deforestation in the Brazilian Amazon and neighbouring Cerrado savannah.
The extent of the protein deficit in 2020 will also depend on whether African swine fever continues to spread, and on how trade relations evolve between China and the US. “If the US lifted production it could help ease the overall supply problem we have in China and globally,” said Mr Sherrard.
-
Delivery Hero (DHER TH) +3.8%
- Delivery Hero Boosts Full Year Revenue Forecast
-
Nemetschek (NEM TH) +3.6%
- Nemetschek Sees FY Ebitda Margin, Rev. at Upper End of Targets
-
Fiat Chrysler (2FI TH) +3.4%
- Fiat Chrysler, PSA Group Plan on 50/50 Combination (1)
- PSA (PEU TH) +2.5%
-
BNP Paribas (BNP TH) +2.2%
- BNP Paribas Beats European Peers With Fixed Income Trading Surge
- Nokia (NOA3 TH) +1.6%
-
Zalando (ZAL TH) +1.4%
- German Online Retailer Zalando Ekes Out Surprise Earnings
-
Repsol (REP TH) +0.9%
- Repsol Third Quarter Adjusted Net Beats Estimates
- LVMH (MOH TH) +0.8
- Airbus (AIR TH) -0.4%
- Bombardier in Talks to Sell Plants to Spirit for Over $1B: Rtrs
- Siemens Healthineers (SHL TH) -0.7%
- Grenke (GLJ TH) -0.8%
- Telefonica Deutschland (O2D TH) -0.9%
-
ING Groep (INN1 TH) -1.4%
- ING Groep 3Q Underlying Pretax Profit 1.6% Above Est. (1)
- GEA Group (G1A TH) -1.5%
- Qiagen (QIA TH) -2.4%
- Qiagen Full Year Adjusted EPS Forecast Beats Estimates
-
Air France-KLM (AFR TH) -2.6%
- Air France-KLM 3Q Op. Profit Misses Estimates; Trims Outlook
Stocks in Asia were mixed after the Federal Reserve indicated that it’s unlikely to move in either direction on policy any time soon following its latest interest-rate cut, while corporate results continued to roll in. Gains in Treasuries petered out.
Shares were little changed in Tokyo, where the Bank of Japan dropped its time frame for forward rate guidance. The yen fluctuated. Stocks gained in Seoul after earnings at Samsung Electronics Co. topped estimates. Nasdaq futures rose as Apple Inc. projected sales that beat expectations. The offshore yuan shrugged off a poor China manufacturing PMI, while stocks slipped in Shanghai and rose in Hong Kong. The dollar dipped and U.S. and European futures were flat.
Macro :
- BOJ Guidance Shift Weighed Against China PMI Shock: Macro Squawk
- China Oct. Manufacturing PMI at 49.3; Est. 49.8
Keep an eye on :
- AIR FP : Bombardier in Talks to Sell Plants to Spirit for Over $1B: Rtrs
- AF FP : Air France-KLM 3Q Op. Profit Misses Estimates; Trims Outlook
- ALT FP : Altran 3Q Rev. EU779M; Remains Confident In Business Outlook
- AMG NA : AMG Third Quarter Ebitda $24.4 Mln
- AMUN FP : Amundi 3Q Net Inflows Rise to Record EU42.7B
- ASM NA : ASMI Fourth Quarter Revenue Forecast Beats Highest Estimate
- BKT SM : Bankinter Nine Month Net Income EU444 Mln, +9.9% Y/y
- BBVA SM : BBVA Third Quarter Net Income Beats Highest Estimate
- BNP FP : BNP Paribas Names Pariset as Swiss CIB Head, Replacing Voegeli
- BNP FP : BNP Shares Likely to React Positively to Results: Morgan Stanley
- CABK SM : CaixaBank Third-Quarter Net Income Beats Highest Estimate (1)
- CARLB DC : Carlsberg Third Quarter Sales 1.1% Above Estimates
- DHER GY : Delivery Hero Boosts Full Year Revenue Forecast
- EDP PL : EDP Nine-Month Net Income Rises 55% Y/y to EU460m
- ETL FP : Eutelsat Says FY Rev. May Land in Lower Half of Guidance Range
- ETL FP : Eutelsat 1Q Disappointing, Shares Likely to Drop: Morgan Stanley
- EO FP : Peugeot Is Said to Weigh Faurecia Spin-Off as Part of Fiat Deal
- FER SM : Ferrovial Nine Month Loss EU104 Mln Vs. Profit EU59 Mln Y/y
- FCT IM : France Says It ’Remains Very Attached’ to Fincantieri Deal
- FCS IM : Fiat Chrysler, PSA Group Plan on 50/50 Combination (1)
- FCH LN : Funding Circle to Introduce Selling Tool Dec. 2
- FUTR LN : Future to Buy TI Media for GBP140m From Epiris; Plans Placing
- GEBN SW : Geberit Keeps Forecast as Net Income Beats Highest Estimate (2)
- IAG LN : *IAG 3Q ADJ. OPER PROFIT EU1.43B, EST. EU1.45B
- LLOY LN : Lloyds Third Quarter Statutory Pretax Profit Misses Estimates
- MDM FP : Maisons du Monde Cuts FY Margin Outlook on Modani, U.S. Tariffs
- OUT1V FH : Outokumpu Oyj Third Quarter Adjusted Ebitda Beats Estimates
- REP SM : *REPSOL 3Q ADJ. NET EU522M; EST EU475.7M
- SAN FP : Sanofi Third-Quarter EPS Beats Estimates, Forecast Reiterated
- SN/ LN : Smith & Nephew Third Quarter Underlying Revenue +4%
- SCMN SW : Swisscom 3Q Net Beats; Confirms FY Views
- SREN SW : Swiss Re Nine Month Corporate Solutions Net Loss $441 Mln
- WAF GY : Greenlight Takes New Small Position in Siltronic: 3Q Letter
- TEN IM : Tenaris Likely to See Downgrades on Weaker 4Q Outlook: Analysts
- TL5 SM : Mediaset Espana Third Quarter Net Income EU29.6 Mln
- UBI FP : Ubisoft’s Ghost Recon Breakpoint Weighs on First-Half Profit
- ZAL GY : Zalando Confirms FY Revenue Growth, Adj. Ebit Guidance
>>> Up
* GN Raised to Buy at Goldman; PT 305 kroner
* Swedish Match Raised to Buy at AlphaValue
* Wihlborgs Raised to Hold at Handelsbanken; PT 150 kronor
>>> Down
* Banco Santander Cut to Underperform at KBW; PT 3.58 euros
* Demant Cut to Sell at Goldman; PT 150 kroner
* GEA Group Cut to Reduce at HSBC; PT 24 euros
* Solvay Cut to Hold at Baader Helvea; PT 102 euros
* Solvay Cut to Hold as Baader Sees Mid-Term Target Cuts, Weak 3Q
* Sonova Cut to Sell at Goldman; PT 193 Swiss francs
* UPM Cut to Hold as Jefferies Sees More Balanced Risk/Reward
>>> Initiation
* Altria Rated New Hold at Panmure Gordon; PT $58
* BAT Rated New Buy at Panmure Gordon; PT 4,600 pence
* Imperial Brands Rated New Hold at Panmure Gordon
* Prosus Rated New Outperform at Exane; PT 85 euros
* Swedish Match Rated New Sell at Panmure Gordon; PT 389 kronor
>>> Call