The Drought In The Midwest Could Cause Pork Prices To Surge In China (CORN)

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The drought in the American Midwest has sent corn prices soaring. And this is a very worrisome sign for Chinese pork prices.

Societe Generale analysts Michel Martinez, Wei Yao, and Jaroslaw Janecki write that nearly 90 percent of changes in Chinese domestic pork prices can be attributed to “global corn prices lagged by one quarter, and soybean prices lagged by two quarters”.

Given that China has outpaced the U.S. to become the world’s largest meat consumer, and that Chinese demand for pork is expected to reach 52 million tons this year this could have significant implications for pork prices.

The recent surge in food prices is unlikely to reverse the overall decline in consumer price inflation. But if food prices continue to soar through summer a rise in inflation could be seen in November or December.

This chart from SocGen shows the correlation between global corn prices and Chinese CPI:

Don’t Miss: Heartbreaking Photos Show How The Drought Is Devastating Farmers In The Midwest >

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