WH Group (288 HK), the world’s largest pork producer, closed several of its US pork processing plants this week even as the coronavirus threatens to escalate food prices further. WH Group has revenue of over US$24bn and dominates pork production in China and the US.
WH Group controls Smithfields, the US pork giant, which reported that over 518 of its staff have contracted Covid-19. It has closed plants in South Dakota, Wisconsin and Missouri. As a result, there is threat of a mass culling of pigs, chicken and other sources of animal protein, but a shortage of processing plants. Prices for pork, which is a vital source of protein in China and other EM countries, has risen 16% ytd. The closures in the US will only worsen the supply crunch.
Unlike oil prices, which have fallen 53% in 2020, Covid-19 has had the reverse impact on food prices. Other than pork, staples such as wheat and rice have rallied. Rice prices are now at the highest since April 2013. Thailand, the world’s second largest rice exporter after India, is expecting higher prices as export bans sweep Asia. Thai exporters anticipate more sales, as their main competitors India and Vietnam battle domestic coronavirus outbreaks. India’s production has come to a standstill with the country on lockdown and Vietnam (the third largest exporter) recently imposed an export ban. Thailand quoted its benchmark 5% broken white rice at cUS$560-US$570 per tonne on a free-on-board (FOB) Bangkok basis on Thursday, according to Reuters.
Stock proxies for the food price surge
In the table below, we identify stocks that are suitable proxies for a food price rally. They are either primary producers or processors that can pass on price increases.