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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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chinese consumers diversify their meat diet but pork will remain the staple meat
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

china pork consumption is already high indicating a limited volume growth potential
China pork consumption is already high, indicating a limited volume growth potential

Per capita animal protein consumption

Kg/capita/annum

Source: USDA,FAO 2011

meat prices drive chinese cpi
Meat Prices Drive Chinese CPI

Index of CPI, CPI food, and CPI meat

Source: China Statistics Bureau, Rabobank

losses reduced hog production
Losses reduced hog production

China Hog to Corn Ratio

Source: Bloomberg

new investment program
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

two of the big issues to overcome are disease
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

and productivity
… and productivity

Hog rearing performance in China and Europe,2010

Source: Rabobank 2010

inventory is low but turning up
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

imports showing long term uptrend
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

consolidation of hog farming
Consolidation of hog farming

China Hog Farm Size,2001-2013F

Million tons/production

Source: MOA, Rabobank 2011

rabobank believes that china s self sufficiency in corn may be coming to an end
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

consolidation of slaughtering segment
Consolidation of slaughtering segment

China’s domestic pork slaughtering segment,2010 VS 2020

Source: Rabobank 2011

subsidy plays an important role
Subsidy plays an important role

Subsidy disclosures by key players

Source: Company data, 2011

ambitious expansion by key players
Ambitious expansion by key players

Expansion plans of key players in China’s pork industry,2011

Source: Company data, Rabobank 2011

the ranking of key pork companies
The ranking of key pork companies

Positioning key pork companies by 2010 sales revenue

Million USD

Source: Company data, Rabobank 2011

rapid growth projected for large packers
Rapid growth projected for large packers

Slaughter Capacity of Key Players, thousand head/year

Source: Company data, Rabobank 2011

hog production profitability has great volatility
Hog production profitability has great volatility

Live hog rearing profit, Mar 2008-Jun 2011

RMB/head

Source: Shennong

slaughterers processors can play with the market while farmers are the weakest link
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

grain prices will be higher and more volatile
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.
increasing pork imports
Increasing pork imports

China pork meat and by-products imports, 1996-2010

Thousand metric tons

Source: UN Comtrade, BOABC

slaughtering profitability has seasonal movement
Slaughtering profitability has seasonal movement

Mark up between live hog price and halved carcass price

RMB/head

Source: Shennong

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