A year ago the world was watching COVID vaccines roll out in the U.S. as companies ramped up production for mass distribution. It appeared that the pandemic could be nearing an end. But one year later and the COVID pandemic remains far from over. The lingering effects of COVID stimulus and a new variant point to further uncertainties in 2022. As we consider all of these BIG, moving parts, here are some key questions for 2022:
Where Does ASF Spread Next? The world’s worst hog disease remains on the move globally. New cases have been reported across Europe, Asia, and even in the Western Hemisphere this year (Dominican Republic and Haiti). In spite of extreme efforts, Germany continues to see outbreaks move westward, a dire prospect for other pork producers in Denmark, Netherlands, Belgium, and France. China has now agreed to a regionalization protocol with France. Will other similar agreements be reached? Likely. But the critical region remains the Caribbean basin. Any spreading there portends a rocky future for North and South American pork producers. I believe there will be further spreading in the region in 2022.
Will China Return to the Global Pork Market? China’s $300/head hog profits we were writing about 12 months ago had the obvious impact of overproduction. Then, combined with ASF outbreaks, the heavy supplies drove aggressive culling for most of 2021, driving prices below breakeven. Today, China’s hog farmers are likely still below breakeven after liquidating and unknown yet likely significant portion of their herds. At some point this aggressively liquidation will slow and oversupply will shift to shortages. We continue to watch China’s live hog prices closely. They are currently around 16 rmb/kg. A breakout towards 25 rmb/kg would trigger larger import demand but would likely lag prices by 3+ months as excess supplies are absorbed.
CA Prop 12 This vote of “compassion” pitched by California activists now threatens as much as 97% of U.S. pork supplies into the top pork consuming state in America. While the law will take effect January 1, confusion over enforcement remains. Some processors are already halting shipments. Some sources suggest enforcement may not occur until mid-2022. Regardless, while one state is facing severe pork shortages sometime this year, the other 49 will absorb those excess supplies weighing on the U.S. hog and pork complex. Timing remains unclear.
Food Inflation: How High and How Long? One year ago in this newsletter I wrote about the shocking price moves across the global commodity spectrum. By February we made the call that this move would be sustained as a “commodity super cycle”. We expect sustained high prices through 2023 with continued volatility.
Interest Rate Hikes Ahead? Central banks around the world wasted no time reacting to U.S. Fed Chairman Powell’s recent statements suggesting more aggressive tapering and rate hike moves into 2022. Following his November 21 nomination for a 2nd term by President Biden, the Fed Chair adopted a much more aggressive tone towards rampant inflation, replacing the “transitory” rhetoric with “rate hike” rhetoric. The rest of the world has a de-facto order to follow suite or have their currencies devalued and spur their inflation further. Since November 21st, at least 10 nations’ central banks have moved to raise rates, with six doing so just last week. Brazil’s central bank interest rate is now at 9.25% even as rampant inflation has pushed them into recession. This “stagflation” will befall other nations in 2022, particularly poorer nations. The U.S. economy is headed that direction but heavily-stimulated bank accounts may stave it off in 2022. – Brett Stuart