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Between 2018 and 2019, African swine fever outbreaks in China profoundly impacted pig farming in the country. The Chinese Ministry of Agriculture and Rural Affairs (MARA) estimates that between detection of the first case in the country on August 1, 2018 and the end of 2019, when the activity began to recover, the swine herd fell by about 40%. As expected, the production capacity of the country’s meat packing facilities was also severely affected. Based on data from the United States Department of Agriculture (USDA), pork production in China went from 54.52 million tonnes¹ in 2017, to just 36.34 million in 2020, a 33.3% drop.
This decrease in domestic supply caused two important movements. First, swine prices on the Chinese domestic market soared. Between 2016 and 2018 one kilo of live animal was usually negotiated between RMB 10.00 and RMB 20.00, while in the last quarter of 2019 it had surpassed the RMB 30.00 and remained above this level until the beginning of 2021.
The other major consequence was the significant increase in Chinese pork imports, which made the country isolate itself as the main buyer of the product on the international market. Again using USDA data as a reference, imports of this protein source by China between 2017 and 2020 grew 3.52 times, jumping from 1.50 to 5.28 million tonnes. In addition to increasing the import of swine protein, the country has also started to consume and import more beef and poultry.
Since 2020, with the outbreak relatively under control, the Chinese Communist Party started to boost the herd recovery, helping farmers and entrepreneurs. These state programs, together with the dynamism of the Chinese economy, enabled a rapid resumption. As early as June 2021, according to MARA estimates, the country’s herd was 439.11 million pigs, similar to pre-plague numbers.
Meanwhile, 2021 also marked a change in market fundamentals. With swine supply growing exponentially, prices began to decline, going back to values in line with the reality before 2018. Between the beginning of January this year and the end of October, swine prices fell by about 54.8% in China. Based on the swine price on the Dalian exchange, there was a 48.16% decline between January 8 and October 28, from RMB 28.29/kg to RMB 14.67/kg. Interestingly, the swine futures market was implemented in China on January 8, precisely due to the need of protecting physical market agents against price volatility.
With the drop in quotes, herd recovery began to decline. In fact, MARA reports showed that between June and September 2021 the number of pigs in China declined from 439.11 million to 437.64 million. Meat production in the third quarter also fell from 13.46 million tonnes in the second quarter to 12.02 million tonnes. That is because producers’ margins are getting very tight, given the deflation of swine prices and high soybean and corn quotes. With this, herd recovery is slower, with smaller farms even getting rid of reproductive swines. According to the USDA estimate, in 2022 swine herd and pork production from China will decline again.
These movements in the Chinese swine protein sector also impact the grains market. According to USDA data, in the 2020/21 crop, China used about 73.4 million tonnes of soybean meal and 203 million tonnes of corn for animal feed, historical records for the country, since this latter corresponded to more than 70% of Chinese domestic consumption during the crop in question.
It is worth remembering that these record volumes were the result of a recovery of the country’s pig herd and measures to control the disease, such as the prohibition of food residues in animal feed. However, weakening swine prices and high grain prices on the Chinese domestic market raised questions about a possible disincentive to use corn and soybean meal in the country for ration.
However, despite the uncertainties surrounding the pig herds, there is demand for ration according to prices. Estimates still point to high consumption. The USDA projects that 214 million tonnes of corn and 76.6 million tonnes of soybean meal will be used for animal feed in 2021/22, which, if achieved, would renew the record from the previous crop.
Although the wheat market is not influenced by the meat market in the same intensity as corn and soybean, winter wheat is much more susceptible to variations in the corn market and, when it is advantageous to the producer, it can even replace it in animal feed production. With a protein value higher than that of corn, wheat is often used in animal feed when the prices of the former are high. This movement took place in 2021, especially in the first half of this year. Between January and June, the relationship between wheat and corn on the Chicago exchange (CBOT) went from 1.33 to 0.91. The lower the ratio, the more expensive is corn compared to wheat.
According to USDA data, every year, about 20% of global wheat consumption is for ration. In China, the USDA estimates that the use for ration will account for about 24% of total consumption in the country in 2021/22. Although the percentage shows an annual decline of 3 p.p. compared to the five years preceding the 2020/21 crop, of 15%, the estimated percentage is significantly higher.
Finally, it is interesting to highlight China’s pace of purchases in the global wheat market. Because of the high prices of Russian origin wheat and the decline of the US export capacity as a result of hurricane Ida, it is speculated that the Asian giant would have to resume trade relations with Australia, with which it has been under diplomatic tension since last year. In the case of the United States, in 2021/22, the total volume of wheat purchased is 848,160 tonnes, while in the same period last year this figure was 1,597 million.
¹Carcass-weight equivalent (CWE).
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Cheaper Brazilian frozen chicken is replacing local poultry production across the Mediterranean and Middle East, taking feed corn demand with it. Corn looks cheap after its slide, but without feed buyers the market struggles to attract fresh demand.
November 4 – Stock futures saw an unusually wide overnight trading range as the results of the U.S. midterm elections came in but are pointing to a sharply positive open to kick off the day, though we may be seeing a flow of money out of tech and into other sectors as policy expectations shift. For reference, tech heavy Nasdaq futures are up only 0.4% at the time of writing, while Dow Jones futures are up 2.2%, and S&P 500 futures are up 1.2%. Markets have often viewed divided government favorably, as political gridlock can limit major policy swings and provide businesses with a more predictable regulatory and fiscal environment. A unified government, by contrast, increases the likelihood that more of the governing party's agenda can be enacted, as we’ve seen demonstrated rather clearly since the beginning of 2025. With that said, the VIX has also fallen sharply this morning, currently down 13% on the day to hang near the 18 level. The dollar is sharply lower to start the day as well, currently down 0.5% to trade near 101.35, potentially a sign of investors heading back into risk-on mode with the election uncertainty behind us, as well as the potential for less aggressive tariff and Middle East policy. Treasury yields are quietly lower, with 2-year yields at 4.60%, 10-year yields at 4.92%, and 30-year yields at 5.303%. With the midterms out of the way, we’ve removed a major layer of noise, hopefully putting us back in a position where financial markets can begin shifting their focus from this uncertainty back toward economic fundamentals, policy implementation, and corporate earnings.
November 3 – It’s election day in the U.S., with the corresponding geopolitical uncertainty looking to drive a day of volatile, headline-driven trade. Stock futures are pointing to a mixed open, with the Nasdaq hoping to find some turnaround Tuesday action to stop the bleeding from the recent selloff that has battered the tech sector and drove the index to its lowest close since late July yesterday. The VIX is off its overnight highs but remains elevated, hovering near 20.8 at the time of writing. The dollar is effectively unchanged to start the day, trading at 101.82. Treasury yields are quietly higher after their recent slide that has coincided with the selloff in the equities, particularly tech, potentially signaling some investors fleeing to safe havens, with 2-year yields at 4.585%, 10-year yields at 4.919%, and 30-year yields at 5.294% this morning. Meanwhile, the ags are mostly lower at the break.
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