How to prosper from the Chinese pork price bubble

Must Read

TAJBank Launches Nigeria’s 2nd Non-Interest Financial Institution (Photos)

Abuja Nigeria   December 2nd 2019, TAJBank, Nigeria’s second Non –Interest financial institution, has announced the launch of its services...

Buhari Appoints CBN Deputy Gov, Edward Adamu, As AMCON Chairman

President Muhammadu Buhari has appointed Mr Edward Adamu as Chairman of the Asset Management Corporation of Nigeria (AMCON). The appointment...

Here are the world’s most popular city destinations in 2019

Euromonitor International recently released the “Top 100 City Destinations 2019” ranking report, covering the world’s leading cities ranked by...
- Advertisement -
- Advertisement -

2019 marks the 70th anniversary of the Founding of the People’s Republic of China. But, for the average consumer in the country, it may be remembered for the soaring prices of the country’s great staple – pork. The disruption caused by African swine flu has had catastrophic consequences for China’s food supply – pork prices have risen 70% in the past year and the average pork price paid by wholesalers is up 85% since August. This has pushed up Chinese inflation to 3% in September, from 2.8% in August.

In this pork bubble, there is a sharp divergence between the performance of pork producers and processors. Shares of Chinese pork producers such as Muyuan Foodstuff, Cofco Meat, Wens Foodstuffs have risen sharply. In contrast, companies that use pork inputs for processed products such as WH Group and Charoen Pokhpand Foods have weakened.

Read:  Will Martin Sorrell Be Remembered for Saving the Ad Industry, or for Crushing Its Soul?

The market is now positioning for a further rise. Soochow Bank has predicted a further 40% rise to CNY30 (US$4.20) per kg. This is assuming a severe shortage where China’s pork production falls by over 20%.

However, we disagree. Pork prices may not remain at these elevated levels, and a sharp correction could be in the offing. The government has announced moves to spur pig farmers to breed more hogs. In mid-September, it was announced that 10,000 tonnes of pork would be released from the central reserves to curb prices.

Read:  Presidential Powers and The Vice President - Reuben Abati

What’s more, the soaring prices have already led to exceptional measures. Local governments are offering discounted pork. For example, in Nanning people are limited to 1kg of pork. In Fujian, subsidised pork is on offer.

Read:  PROFITABILITY: PIG FARMING AS A LUCRATIVE BUSINESS IN NIGERIA

We think pork processors seem to have been mispriced in the wake of the African swine flu outbreak. In our view, they have unjustly underperformed – these companies are highly branded and have excellent cash generation. Previous outbreaks of swine flu in 2009 and bird flu in 2013 were buying opportunities in the space, but investors need to look beyond the disease. Pig prices may be flying high, but we believe the laws of gravity will catch up with the pork producers.

 

CULLED FROM TELLIMER

- Advertisement -

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

MUSON Appreciates MTN Foundation, others with Donors Concert

The Musical Society of Nigeria (MUSON) hosted donors to an appreciation concert as part of its end of year...

Waterfront Suites wins ‘Best Seaview Serviced Apartment’ at the Squarefoot Best of the Best Awards 2019

HONG KONG, CHINA - Media OutReach - 11 December 2019 - Waterfront Suites is proud to announce that it has been awarded "Best Seaview Serviced Apartment"...

Infor Named a Leader in Gartner 2019 Magic Quadrant for Enterprise Asset Management Software

Infor CloudSuite EAM continues to help organizations transform asset performance and maintenance productivity NEW YORK, US - Media OutReach - 11 December 2019 - Infor, a global leader in...

Home-Grown PropTech Company Cultivates Culture of Innovation With Upskilling Initiatives

SINGAPORE - Media OutReach - 11 December 2019 - Augmenting a culture of innovation, home-grown property technology company Ohmyhome has introduced a series of...

More Articles Like This