How Chinese Buying Is Causing a Boom in Agricultural Commodities

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, I know there's been a lot going on this year.

We obviously have a new US president. We had the GameStop saga in markets, but I think we can all agree that the big news of 2021 has been that China's new live hog futures started trading.

Joe Weisenthal (0:38)

Yeah, I mean, that's obviously what I was going to say as well. I mean, that's sort of the big thing that everyone is talking about so far this year.

Tracy Alloway (0:46)

Yeah, okay, so clearly we are joking, but I will say these new futures contracts were something like 20 years in the making. So they took a really long time to get here.

One of the reasons that China is so interested in starting futures contracts for pork is because they've basically had their pig supply absolutely decimated in recent years by African swine fever. So the whole idea is that the futures contract will come in, it'll allow some standardization of pigs, and it will allow farmers to hedge and things like that, and they'll be able to rebuild their pork supply.

Joe Weisenthal (1:24)

Mm, standardization of pigs. I'm very intrigued by this.

Tracy Alloway (1:31)

Yes, okay, welcome to Agricultural Odd Lots. So we're going to be talking about the pig futures contract, but we're going to be talking about food price inflation more generally, because of course, we've seen pork prices in China absolutely surge recently. It's starting to come down now, but globally, as you know, Joe, there's been a massive rise in food prices.

Joe Weisenthal (1:54)

Yeah, and I would say if I were to actually, from an eco standpoint, if I were to say, what is the biggest story in 2021 or in the economy right now, it would be all of the different bottlenecks, price increases we're seeing at the producer side. We've talked about it with shipping and we've talked about it with semiconductors.

We've talked about it with Jeff Curry with industrial commodities. And of course, we're also seeing it in agricultural commodities. If you look at the last year in the US., soy futures up from 900, I guess it's per futures contract per bushel, 900 to 1400, corn is up by a lot, hogs are up by a lot, cattle is up by a lot.

So there is almost all these different categories. We're seeing this upward price pressure, issues relating to, of course, supply chain disruption, still dealing with COVID, massive recovery and demand around the world, particularly in China, but elsewhere. And now as of the time that we're recording this, and I think we're going to talk about it too, the extraordinary scenes that we're seeing out of Texas and the freeze, which is really disrupting the economy of the entire central part of the United States.

Tracy Alloway (3:06)

Yeah, a perfect storm of factors coming together to increase food prices.

Storm might not be the right phrase there, but it is, I mean, you are starting to see actual impacts of this. So here in Hong Kong, McDonald's isn't offering hash browns in its breakfast anymore. So, you know, things are very serious. More seriously, we've seen some countries starting to talk about putting price caps on food prices. I think Russia is already doing it. The UAE was talking about doing it as well. So it is beginning to affect people's lives and it is causing problems for some governments. So we're going to dive in to the whole issue of food price inflation, as well as the new Dallian hog futures contract by popular request.

We're going to be speaking to Scott Irwin. He's an agricultural economist at the University of Illinois. Scott, welcome to the show.

Scott Irwin (4:00)

I'm glad to be here.

Tracy Alloway (4:02)

So Scott, in addition to being an agricultural economist, you're also an actual farmer from Iowa. Is that correct?

Scott Irwin (4:12)

Well, that's probably technically speaking. I don't actually get much tractor driving and physical participation, but it's an interesting situation.

I, from the landlord side of my family's farm out in Iowa, my 85-year-old mother and I provide the management and do all the marketing of the crops. So I live through the ups and downs of the grain markets like everybody else. Plus I get to try to work the markets with my card-playing 85-year-old mother.

Joe Weisenthal (4:45)

That sounds extremely satisfying and fun.

You know, right now, you know, I sort of mentioned this rally that we're seeing. It's pretty intense across various soft commodities, agriculture commodities. Why don't you give us the sort of basic big picture of what's going on, what's driving this bid?