Food commodities

MSN carried this interesting article on the relationship between the prices of corn and meat (pork and beef): "How to turn food into money". To a large extent it explains the decline in pork and beef prices as corn (which is the staple feed for livestock) prices have been rising.

What the article does not explain is the rising price of pork paid by consumers in Hong Kong and the rest of China. In Hong Kong it is tempting to attribute the discrepancy to currency movements. However, this would be wrong as the HK$ is pegged to the US$ which means that falling prices for beef and pork should translate into lower prices in the shops. This has not happened. In fact the price of pork in the shops has risen even though the price in international markets has fallen. The same has happened in China where, if anything, the decline in international prices should have been magnified by the rise in the RMB against the US$.

So while the decline in meat prices in the commodities markets is explained (and is hopefully a short term situation), the rise in the prices paid by consumers in Hong Kong and the PRC is still unexplained. The best explanation I have been able to come up with is a combination of localisation of the supply and demand (most pork in greater China is sourced locally) with restrictions on importation (China objects to some of the additives used by US pig farmers).

Given my small, and so far loss making, investment in lean hogs ETC, I hope the situation is a short term one that will reverse itself by a combination of reduced supply and rising demand as the PRC relaxes import restrictions to combat inflation in basic food staples.