A Few Thoughts: China – self-sufficiency and buying global food companies
Per capita red meat and poultry supplies hit a low of 202 pounds in 2014 and down from a record 222 pounds in 2007. As a result of rapid herd expansion that resulted from record prices, we are projecting this year’s per capita supplies will reach 218 pounds up 8 percent from the 2014 low. In 2018, we are projecting the red meat and poultry supply will be pushed to 223 pounds per person, 11 percent higher than in 2007 and a new record.
Simply put, the supply of total meat over at least the next two to three years will outpace the domestic demand necessary to maintain current prices across the beef complex. The key to beef prices as we go forward, given the supply outlook, is export demand. U.S. beef shipments to Asia represent over 60 percent of our total beef exports and are up sharply already this year. China will increasingly be the prominent player in the demand outlook. While future trade deals are obviously critical to the future of U.S. meat, dairy, and grain trade, I believe we may be overlooking another option for China.
Chinese imports of agricultural commodities largely rests on the notion of food security. President Xi Jinping in his meeting with President Trump showed a willingness to once again open their market for U.S. beef. I have no doubt this will move forward but in the long run, their need for food security will increasingly lead to a strategy of acquiring the assets of food production in global markets by Chinese companies. Think Smithfield Foods accounting for 28 percent of U.S. pork production. In 2013, Smithfield was acquired by Shuanghui International Holdings, Ltd. a Chinese company and the world’s largest pork producer. Smithfield recently purchased Farmer John, the regional pork packer owned by Hormel and located in Vernon, Calif. This brought Smithfield’s market share of U.S. pork production to 30 percent. In addition to this large pork industry acquisition in the U.S., Chinese food companies have also acquired beef plants in South America, as well as several dairy operations in New Zealand.
Given the many acquisitions that we have already seen, it is probably reasonable to assume at some point, a Chinese interest will purchase a major beef processing company or perhaps a major beef, pork and poultry company in the U.S. Does that mean increased exports of U.S. agricultural products to China? By definition, yes. But those increased exports from the U.S. may not be from U.S.-owned firms but rather Chinese owned firms.