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The Chinese Pork Dilemma David Nelson, Global Strategist

Global Business Dialogue. The Chinese Pork Dilemma David Nelson, Global Strategist. Chinese consumers diversify their meat diet, but pork will remain the staple meat. Comparison of Meat Consumption Patterns, 1985, 2008 and 2015F. Source: MOA, Rabobank 2011.

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The Chinese Pork Dilemma David Nelson, Global Strategist

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  1. Global Business Dialogue The Chinese Pork DilemmaDavid Nelson, Global Strategist

  2. Chinese consumers diversify their meat diet, but pork will remain the staple meat Comparison of Meat Consumption Patterns, 1985, 2008 and 2015F Source: MOA, Rabobank 2011

  3. China pork consumption is already high, indicating a limited volume growth potential Per capita animal protein consumption Kg/capita/annum Source: USDA,FAO 2011

  4. Meat Prices Drive Chinese CPI Index of CPI, CPI food, and CPI meat Source: China Statistics Bureau, Rabobank

  5. Losses reduced hog production China Hog to Corn Ratio Source: Bloomberg

  6. New Investment Program Under the umbrella of China’s 12th 5-year plan a RMB 2.5b (US$390m) investment program to support large scale pork farms in June. The investment will be aimed to improve: Research and development Infrastructure and transportation Genetics Breeding

  7. Two of the big issues to overcome are disease… Disease is endemic, though magnitude comes and goes Chinese provinces with identified FMD outbreaks as of January 27, 2011

  8. … and productivity Hog rearing performance in China and Europe,2010 Source: Rabobank 2010

  9. Inventory is low but turning up Hog and sow monthly inventory (Jan 2009- Jun 2011) Production improvements could be meaningful near year end Million head Source: MOA

  10. China Fresh and Frozen Pork Import Volume Metric tons Source: BSNABC

  11. Imports showing long-term uptrend We believe China’s pork imports could rise substantially China pork imports (offal and meat), 2004 to 2011 Source: China Customs

  12. Consolidation of hog farming China Hog Farm Size,2001-2013F Million tons/production Source: MOA, Rabobank 2011

  13. Rabobank believes that China’s self-sufficiency in corn may be coming to an end. China Corn Deficit China adds a potentially bullish wild card to the corn market. Million metric tons Source: Rabobank

  14. Consolidation of slaughtering segment China’s domestic pork slaughtering segment,2010 VS 2020 Source: Rabobank 2011

  15. Subsidy plays an important role Subsidy disclosures by key players Source: Company data, 2011

  16. Ambitious expansion by key players Expansion plans of key players in China’s pork industry,2011 Source: Company data, Rabobank 2011

  17. The ranking of key pork companies Positioning key pork companies by 2010 sales revenue Million USD Source: Company data, Rabobank 2011

  18. Rapid growth projected for large packers Slaughter Capacity of Key Players, thousand head/year Source: Company data, Rabobank 2011

  19. The End

  20. Hog production profitability has great volatility Live hog rearing profit, Mar 2008-Jun 2011 RMB/head Source: Shennong

  21. Slaughterers/processors can play with the market while farmers are the weakest link Prices of piglet, hog, mark-up retail pork VS hog, mark-up wholesale pork VS hog Source: CAAA , Rabobank

  22. Grain prices will be higher and more volatile • The Black Sea region has become the world’s incremental supplier, and production in the region is inherently volatile due to weather (and politics can be volatile too). • China, India, Indonesia and Brazil have over 3 billion people and have economies growing at 6-10% • Accessing incremental acreage is difficult due to lack of infrastructure and a variety of governance issues (e.g. property rights). • Accelerating meat demand in developing markets is accelerating grain demand, at a time when productivity (yields) are decelerating globally. • The bottom line: we have moved from an environment of structural grain surplus to one of challenging demand growth. • The new normal: we believe prices will gravitate around cost of production, which is now near $5/bushel for corn and $12/bushel for soybeans.

  23. Increasing pork imports China pork meat and by-products imports, 1996-2010 Thousand metric tons Source: UN Comtrade, BOABC

  24. Slaughtering profitability has seasonal movement Mark up between live hog price and halved carcass price RMB/head Source: Shennong

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