Pork prices threaten higher inflation in China and promise higher farm profits in South America
This little piggy went to market. This little piggy stayed home. This little piggy had roast beef. This little piggy had none.
Well, actually China’s 689 million pigs will have none—unless China imports 68 million tons of soy beans a year by 2014. That would be 17.7 million tons more of soybeans than China imported in 2010. (Just to put this in perspective, the entire soybean crop in Iowa in 2010 came to just 13.5 million tons in 2010.) And would mean that China consumes one ton out of every four produced in the world.
The cause is rising incomes in China. Meat consumption has doubled in China in the last two decades and it takes about 2.8 pounds of feed to produce a single pound of pork. The average person in China will consume a record 86.6 pounds of pork this year, compared with 43.3 pounds in 1990, according to the U.S. Department of Agriculture. Since 1990 China has also added 182 million people.
U.S. farmers won’t be the biggest beneficiaries of rising Chinese soybean imports. Read more
Update Bunge (BG)
Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil.
The deal, for as much as $3.8 billion, would relieve Bunge of a unit that showed a loss of $127 million in the third quarter, and give the company cash to pay down debt that stood at $4.1 billion at the end of September 2009.
For Vale, the deal would give the company, which already produces potash fertilizer at Taquari-Vassouras in northeast Brazil and is developing new projects in Brazil, Argentina, Canada, and Peru, additional scale in the short-term and in the longer-run a potential path to dominating Brazil’s fertilizer market. Read more
Update Bunge (BG)
On October 22 Bunge (BG) reported disappointing revenue for the third quarter of 2009, missing Wall Street estimates by $900 million. And then the company guided Wall Street to expect earnings of just $3.10 to $3.50 for the full 2009 year instead of the $4.69 analysts had projected
Clearly Bunge hasn’t yet seen a turnaround in its markets. Read more
Are you contrarian enough to own farm stocks?
So when’s the farm rebound?
The U.S. Department of Agriculture can’t cut its forecasts of farm income fast enough.
Farm income will drop 38% in 2009 from 2008 levels, the USDA said on August 27. The forecast of $54 billion would mark a seven-year low in farm income and is down from a USDA forecast of $71 billion last February and down, down from the $87 billion projected at the end of 2008.
Falling prices for farm commodities are, of course, a big part of the problem. But farmers are also getting squeezed since prices for what they produce have fallen faster than the cost of things that they must buy. Read more
