US-China Pork 'Imbalance'

Here is another interesting development in the international "Pork" market.

There seems to be an ongoing divergence in China and the US.

In China, pork prices seem to be collapsing.

This from the Wall Street Journal, (bold highlights mine)

``Pork prices have fallen 14 weeks in a row according to China’s Ministry of Agriculture, their lowest level in four years, and cheaper even than some vegetables. In the first week of April, the average hog price was 9.43 yuan ($1.38) a kilogram.

``The porcine price plummet has forced the government to add to its much vaunted frozen pork reserve, a series of icy warehouses around the country it set up a few years ago to stabilize pork prices.

``One Chinese press report, citing government statistics, says live pig prices have dropped 21% this year. Another report says pork prices have fallen below the lowly lentil.

``The hope is that by adding to the frozen pork hoard, the government demand will take enough meat off the market to drive prices back up.

``Why does the government want higher prices? Farmers are complaining. According to several stories in the Chinese press too many slaughtered pigs are coming to market, driving farmers to despair.

``Pork plays a vital role in China’s commerce. There are almost half a billion pigs in China, one for every three people. In gross terms, like in humans, China dwarfs other countries in pigs. And there’s no India of pigs to rival China. The next biggest producer is the U.S., which has 65 million pigs, according to the United Nation’s Food and Agriculture Organization. In fact China produces more pigs than the next 43 pork producing countries combined."


And here is why Pork supplies ballooned in China, back to the WSJ,

``The cause of the recent glut of pigs was a reaction to a shortage just a few years ago. An epidemic of blue pig ear disease wiped out pigs across the country and sent pork prices skyrocketing, leading inflation to dangerous levels. The virus attacks pigs’ reproductive systems.

``After the 2007 and 2008 price spike, the government set up the frozen pork reserve and offered subsidies to pig farmers to get the pig population back up. It seems to have worked too well.

``A Ministry of Agriculture report also says changes in the economy have also curbed the growth in the nation’s pork appetite. Demand for pork from migrant workers in big cities has ebbed as more country folk stayed home after the economic slowdown."

In short, markets reacted to the surge in prices by dramatically adding to supply, which had been exacerbated by government "subsidies".

So a pork "bubble" may have developed, which apparently could have just imploded.

At the other side of the continent, in the US, pork prices are going into the opposite direction.
Pork futures (lean hogs) seem to be skyrocketing! (chart courtesy of ino.com)

I have little clue on the status of the global pork trade, except for the following

-the global agriculture market remains one of the "closed" areas.
-the US became a net pork exporter since the mid 1990s.
-Chinese reportedly will reopen to US exports following a ban due to concerns over H1N1 virus.
-current rise in US futures is due to 'tight supplies'

I would suspect that such imbalances could have been mostly due to the distortions brought about by trade restrictions.

This means that the global pork market could be alot inefficient hence the immense disparity in the prices. Otherwise, in a free market, allocative adjustments through price signals would have approached the law of one price.

To add, there seems hardly a cross currency factor here influencing trade ("no 'low' yuan makes us poorer" meme here; move along nothing to see here).

Worst, closed markets, plus government interventions seem to give rise to miniature boom-bust patterns.