As of this article's publication, nearly 45,000 cases of the recently named COVID-19 novel coronavirus have resulted in more than 1,100 deaths worldwide since first reported in China on January 27, 2020. Almost immediately, comparisons were made with the severe acute respiratory syndrome (SARS) outbreak that also started in China in 2002 and ended up killing more than 40 Canadians. Suffice to say, public fear is to be expected.
And while fear can be a reasonable response to perceived threats, it is also a handy tool for market speculators. In this case, speculation that the situation in China would result in the decreased consumption of pork domestically. So far, the speculation has been unwarranted.
“It appears, for some reason, lean hog futures traders believe coronavirus in China is going to have consumers stop eating pork,” said Jim Long, President & CEO, Genesus Inc. “Not sure where that idea comes from. Is this rational or just panic by a group driven by the fear of margin calls?”
While the domestic pork price in China remains steady, indicating stable demand, market overreaction has caused undue harm for Canadian producers. For nearly two years, China has struggled to fill its protein needs since the rapid spread of African Swine Fever (ASF) devastated the country’s pork industry. In theory, such a shortfall should have pushed prices upward, but the effect was minimal, thanks to an unfavourable trade situation between the U.S. and China, which was compounded by political tensions between Canada and China for more than four months in mid-2019. The result was western Canadian pork producers shouldering the burden somewhat alone.
More recently, prices plunged as speculators suggested that COVID-19 would cause Chinese officials to abruptly halt the purchase of foreign goods like meat as a means of getting a handle on the virus. By reports in major news media and on social media, the Chinese government is taking some extreme precautions, but according to Freddie Xu, China Marketing Director, Canada Pork International, food demand remains unchanged, and the Chinese government is encouraging back-to-work efforts and normalized food shipments.
“There were rumors from North America that China has stopped pork trading, but I haven’t found any signs that’s the case,” said Xu. “With the extended Chinese New Year holiday, warehouses filled up, since workers had yet to return. Due to efforts to control the coronavirus, disruptions to public highways and transportation systems created additional delays to moving products that were already stored.”
With the news of COVID-19’s spread, urban residents in first-tier cities started relying heavily on online shopping, which includes food. Grocery and meal deliveries have doubled recently, with retailers and restaurants working hard to keep up. The domestic price of pork in China remains at 200 per cent over this time in 2019, and e-commerce services have pork priced at premium, including high-end supplies from Canada, Spain and Germany.
Despite the overstated brief market hiccup, margins suffered in the two weeks after the first reported case of COVID-19 – bad news for pork producers who have been struggling for many reasons, not the least of which is price-related chaos.
China is home to 1.4 billion people. The country produces the most pork in the world by total volume and consumes the most pork in the world per capita. If anything, disease outbreaks, whether they threaten animal or human health, should signal a greater need for food security. According to speculators, this was not the case. According to the Chinese government, it is.
Time will tell what the coming weeks hold for Chinese consumer demand and the effect on pricing, but it is important to recognize how every market ripple is amplified at the farm level.
The absence of a uniquely Canadian price on pork, in favour of a U.S. default, continues to hammer the industry. Add to that a struggling dollar, along with new production and transportation regulations, and the hit to producers’ pocketbooks is a recipe for much anxiety.
And that is not a matter of speculation, but certainty.