African swine fever is ravaging China’s pork supply and having a global impact on protein prices. For equity investors, the crisis serves as a reminder that even amid trade-war uncertainty, research into domestic trends can help investors access the country’s vast stock market.

China is a pork-loving nation that produces and consumes about half the world’s pig meat. That’s why the outbreak of African swine fever is so dramatic. It’s a deadly virus with no known vaccine or treatment, so Chinese farmers have been forced to conduct massive culls of hog herds. By the end of the year, China’s pork output may be reduced by as much as 30%, according to some analysts. At a time when Beyond Meat’s IPO in the US is drawing attention to potential substitutes for animal proteins, China’s crisis is threatening to change the supply and demand dynamics of meat markets around the world.

Shrinking Pork Supply Shakes Global Meat Markets

Consider the numbers. In 2018, China produced 54.2 million tons of pork while consuming 55.7 million tons. The total world supply of pork was 113 million tons. If current forecasts materialize, China would lose about 16 million tons of supply by year-end—more than the total production of the US and Brazil combined. The world simply doesn’t have enough pork to fill the void.

What about other animal proteins? Last year, China produced 11.7 million tons of chicken and 7.3 million tons of beef, according to the USDA. Substituting other meats for pork would push up demand in China and globally. This will have several effects on global markets:

    • Animal meat prices will increase—pork prices already rose 15%–20% in April, which is typically a seasonally weak period. Chinese pork prices may surge 50% by year-end, according to some forecasts. Chicken prices are rising and even the demand for premium Australian steaks has increased. There are already signs that meat prices are up, from the US to Europe to Brazil. Poorer countries will be affected most.
    • Meat consumption will decline—as prices rise broadly, we expect a significant decline in meat consumption in China over the next year and a half. This could potentially lead to a change in consumer behavior and tastes for years to come.
    • Grain prices are likely to fall—because there will be fewer hogs to feed. That’s bad news for farmers, especially those in the US who already feel squeezed by the US-China trade war.