LH April price update; Firmer dollar diminishes import margin

Table of the day – price snapshot

Domestic wheat prices rebounded 4% in the second half of last month as the government suspended state auctions of wheat reserves as the harvest of new winter wheat crop is underway and the backlog of orders started to ramp up as well due to slow logistics.

Live hog prices spiked more than 12% during the same period with sow herd in China retreated sharply in Q1, down 6% from the previous quarter.

The key indicator of hog-corn ratio last week reached the highest level in two months and the state stockpiler ended its national pork reserve restocking program for this year.

Soybean prices edged nearly 2% higher as crushers ramped up their operations which subsequently led to a weaker soymeal price that fell 2.7% during the period.

Fertilizer prices continued to strengthen, up more than 7%. The ongoing war in Ukraine and rising global raw material prices kept weighing on prices. In particular, potash fertilizer prices have firmed significantly this year as China depends heavily on imports while Russia and Belarus are two major exporters of potash.

Quote of the Day

“During the May holiday, pork consumption was very sluggish. Under the cover of Covid restrictions, tourism, catering and other industries were greatly restricted, and households were less motivated to consume pork.”

-Daily hog industry wire, May 6th, 2022

Stronger dollar tightens Chinese import margins

The dollar further strengthened against the Chinese renminbi (yuan) this week pushing the spot exchange rate above 6.7 yuan per dollar for the first time since late October 2020.

The exchange rate has gained almost 5.7% in the past month.

Firmer US dollar has been largely fuelled by the Fed’s decision to raise interest rate in the US by half-point earlier this week, the biggest rate hike in two decades, confirming investors’ expectations.

This has continued to squeeze the profitability for agricultural imports into China as the cost of goods became more expensive given the stronger US currency. The market is likely to price in more US interest rate increases this year.