How China’s pork disruption is shaping contrarian hedge fund Russell Clark’s global crop price stance
London-based global equity hedge fund Russell Clark Investment Management is eyeing a rise in global agricultural crop prices amid potential wider global food inflation, as a result of the disruptive impact of swine flu on China’s pig population.
China – the world’s foremost pig producer and consumer – has seen the cost of pork double after the African Swine Flu virus wiped almost two-thirds of the country's pigs between 2018 and 2020, with prices there now six times those of the US.
In a note this week, Clark suggested that the global pork market is set to stay “very tight for a prolonged period of time”, stemming partly from China needing to rebuild its herd post-virus, and also a lack of increased exports from the EU – the dominant global pork exporter – due to a separate swine flu outbreak in Germany.
As a result, the contrarian long/short hedge fund manager known for his bearish stock market calls believes that rather than Chinese pork prices falling, other food prices may rise partly because of the pork supply shock.
Outlining his thesis, Clark noted that while China is a major grain producer, in recent years it has become a large importer of soybean to feed its pigs, since pork makes up most of China’s meat production.
But China will remain reluctant to become a large grain importer, he said, noting that it imposes tariffs on corn when imports exceed 7 million tonnes in a year – a barrier already reached in 2020.
“The feed conversion ratio for grain to pork is around 4:5, implying that the 15 million tonnes of lost pork production is equal to 60 to 75 million tonnes of grain. When the pig herd is rebuilt, the lost feed must be made up in addition to the usual amount of feed that is needed.”
With tariffs of 65 per cent having been placed on corn imports, Chinese corn prices are now much higher than global prices.
“If you think of a grown pig that is culled, that is lost feed - or a lost investment - to the farmer,” said Clark, whose long-running firm rebranded from Horseman Capital Management earlier this year.
“China seems to be much more willing to be a pork importer than a grain importer. The implication is that high pork prices are here to stay.
“If Chinese prices start to influence pork prices globally, then pork farmers everywhere will be incentivised to increase pig herds. Grain demand would likely increase and agricultural crop prices would look likely to increase as a result.”