Food price inflation is about to become a big concern for U.S. consumers and investors alike. But not for the reason (i.e. trade war) you might think.
Inside U.S. Trade reports, “An outbreak of African Swine Fever [ASF] that is decimating China’s hog and sow population is lowering demand for soybean feed, the Agriculture Department says, projecting a substantial decrease in Chinese purchases of one of the commodities being hit hardest by U.S.-China trade disputes.” The disease is also harming livestock in Vietnam and South Africa.
The report continues: “Based on USDA’s import forecast for China from May 2018, and trend forecasts using earlier USDA baseline forecasts as a guide, the global soybean market faces a potential 42 million ton accumulated decline in China’s import demand through the 2019/20 year. The loss for 2018/19 is projected to reach 17 million tons with 2019/20 losses totaling 22 million tons.”
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Additionally, a May 10 report from the United States Department of Agriculture states, “African Swine Fever (ASF) in China will be a game changer for the global oilseed complex, and soybeans in particular, in the coming years. China’s Ministry of Agriculture and Rural Affairs reporting that the pig herd has declined by 20 percent since ASF was first reported in early August 2018, and China’s feed demand and soybean imports are projected to fall dramatically from earlier forecasts.”
I’ve been following this story since last August, and even emailed an investment friend in September asking, “How do we buy pork futures?” The situation is poor. Recent news stories project China losing 100 million of their 440 million hogs and sows in 2019. But knowing as we do that China controls their news sources with a tight fist, it would be easy to assume that the death rate is even more dire.
As a result of the decimated hog population in China, consumers can expect elevated pork prices, likely for several years. Now compound that problem with recent historic flooding in the U.S. Midwest that destroyed cattle, pigs, grains and planting fields, and you’ve got a probable food price inflation situation that could be the cause of the next substantial increase in the Consumer Price Index (CPI), an inflation measure. In addition, labor costs are rising, which is great for employees’ incomes, but those costs get passed on to consumers and therefore contribute to food price inflation. Rising inflation naturally leads to rising interest rates, which then puts pressure on stock and bond prices. Thus, higher food prices could put a damper on your portfolio down the road.
The media will likely blame rising inflation and interest rates on politics, because news stories are far too often agenda-driven. So I’m just telling you in advance that if food prices rise, it will result from the effects of a global livestock health disaster combined with a U.S. weather disaster, and not from some arbitrary decision coming from Washington D.C.
Editor’s Note: This post was excerpted from the May 14 issue of Crista Huff’s Cabot Undervalued Stocks Advisor newsletter. To learn how to subscribe to this growth and value stocks advisory, click here.