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Does the Smithfield Acqusition Impact China's Corn Import Program? - 4 June 2013

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TheCropSite
Wednesday 5th June 2013.
Sarah Mikesell - TheCropSite Senior Editor

Sarah Mikesell
Senior Editor


Does the Smithfield Acqusition Impact China's Corn Import Program?

Greetings! My colleagues always tease me that if they want to know the weather, they just look at my e-newsletter. And it’s true, I admit it – I’m a weather watcher. I think that being a farmer's daughter - it’s just ingrained in me. I realized early on that despite our complete lack of control over the weather - as grain and livestock farmers - it had an enormous impact on our lives and our livelihood. And as with much of our life, the best you could do was prepare and plan around it.

In that spirit… much of the Midwest saw more rain last week, with heavy rainfall and flooding hitting some areas over the weekend. At this point, the soybean market and plantings are feeling the pinch more than corn. According to Monday's USDA’s Crop Progress Report, corn is now 91 per cent planted compared to 86 per cent planted last week and the 5-year average of 95 per cent planted.

US soybean planting progress is reported at 57 per cent – right in line with trade expectations. This is up from 44 per cent planted last week, but well below the 5-year average of 74 per cent planted.

Weather, technicals and tight old crop supplies are all impacting the soybean market. Weather forecasts show rain moving into the Midwest midweek and then again over the weekend. Analysts said delays in planting beans are not extremely critical for new crop production but create the concern about filling the demand for beans early this fall.

The big news last week… China's Shineway (Shuanghui International Holdings Ltd.) has agreed to purchase Smithfield Foods Inc., the largest hog and pork producer in the world, leaving much speculation for a rise in US pork exports to China.

But what does it mean for the grain market? The US Grains Council said the resulting increased pork import program is unlikely to hold off China's expected future corn import program.

Dr. Bryan Lohmar, USGC director in China, says it will be extremely difficult for Shineway to significantly increase US pork exports to China simply through its control of Smithfield.

"Let's say Shineway seeks to increase US pork to China by 1 million metric tons per year. Even if it does somehow manage to increase production and meet such an ambitious export target, that much additional imported pork would displace only 3-3.5 million tons (118-138 million bushels) of corn demand in China, or less than 2 percent of China's total corn demand," he said. "Considering USDA forecasts nearly 20 million tons (787 million bushels) of annual corn imports in China within the next 10 years, even this large hypothesized increase in pork exports would only reduce projected imports by less than 20 percent."

Lohmar also noted that boosting US pork exports by such a large amount will be difficult for both physical and political reasons. Smithfield's total US pork production is estimated at just over 2 million tons in 2012.

"Expanding production by an amount significant enough to put a sizeable dent in China's corn import program would require enormous growth. This growth would take time, require new facilities, and would almost certainly be faced with environmental and other interests that are already challenging the expansion of large swine operations in the US," said Lohmar.

Such an increase in China's pork import program would also be challenged by China's large and rapidly growing modern pork industry, particularly if it comes from only one player, Shineway.

Have a great week!


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