Some general ideas for today: AUDUSD, China tariff on US pork
Will AUDUSD be supported?
The time is now 12 noon local time (GMT +8, Singapore, Beijing time). In 30 minutes, Reserve Bank of Australia will publish it’s cash rate and rate statement.
I am looking at this chart of AUDUSD. Most important feature is the dotted black line in the mid-76 region. This was a key resistance for 6 quarters or a whopping 18 months from 2016 to mid-2017. As can be seen from this monthly chart below, despite various intra-month penetrations above, at no time during that period did a month-end close above this dotted line.
In a few moments, we will know if 1) RBA has any impact on AUDUSD 2) if there is impact, whether this dotted line is going to offer support? I have a bearish bias. I am merely following the bearish momentum from February – March. In addition I think that since the US Fed is supposedly on a tightening cycle now, this gives a temporary respite to other central banks around the world the chance not to tighten and hence to run their own stimulus program. Think of it as a balancing act.
How did the Chinese react to China’s announced tariff on US pork, fruits?
This is an interesting article published in Chinese. I came across several other articles that are similar in tone.
From Tech-Food.com, ‘美猪加税怎样影响我国猪肉市场？权威人士如是说‘ (Google Translated)
How does the increase of US pig tax affect China’s pork market? Authorities say
In the early hours of April 2, the State Ministry of Finance issued a statement saying that it was decided to suspend duties on seven categories of 128 imported goods originating in the United States from now on, and imposed tariffs on the basis of the current applicable tariff rates for fruits and products. The tariff rates imposed on 120 items of imported goods are 15%, and the tariff rates on 8 imported products including pork and products are 25%. The current policy of tax-free and tax-exemption remains unchanged.
The final implementation of the taxation policy will increase the cost of imported pork in the United States, which will inevitably contribute to domestic hog farming enterprises.
Yesterday morning, the domestic hog farming stocks all rose. As of the close of the afternoon, Xinwufeng gained 5.24%, Muyuan Co., Ltd. gained 4.28%, Luoniushan gained 4.26%, Wen’s shares rose 3.5%, and hawks’ agriculture and animal husbandry rose 1.9%.
Tickers of the mentioned Chinese companies are listed here:
- Chuying, 002477.sz
- Wenshi, 300498.sz
- Luoniushan, 000735.sz
- Muyuan, 002714.sz
- Xinwufeng, 600975.sh
For those of you interested to understand more about the nature of pig farming in China, this is the rest of the Tech-Food article. It makes very interesting reading.
“The scale of pig farming in the United States is relatively mature, so the production cost is better than China’s. However, domestic hog prices are also at a low point in the cycle in 2018, so there is little demand for imported pork from the United States.” Analyst Feng Yonghui of Sogou.com Received the Securities Times.e An interview with the company’s reporters said that in 2018 China’s hog breeding market will show a balanced supply and demand situation, and even in some months there will even be oversupply, and the market will not lack pork.
It is reported that the current domestic pig slaughter price is below the cost line, and the average loss is about 200 yuan. The domestic pig breeding cost is 5.1 yuan/kg, and the American pig cost price is 3 yuan/kg. Importing frozen pork from the United States requires about 30% of logistics costs and trader costs. If you add a 25% tariff, the cost of pork in the United States will increase by about 55%. At the same time, the price of imported frozen pork in the country is lower than the selling price of fresh pork. Therefore, after the tariff is added, US pork has no price advantage.
Feng Yonghui believes that the addition of a 25% tariff on imports of pork from the United States will have a strong impact on US pig-breeding companies. The United States may face a situation in which supply exceeds demand this year. Prior to this, China’s important pork importing countries were concentrated in Germany and other EU countries. However, in recent years, due to the increase in the import volume of pork to the United States, Shuanghui, the leader in the processing of meat products, has made the United States market and its dependence on the Chinese market. China is the world’s largest pork consumer market. In 2016, China’s pork import trade volume reached 1.6 million tons, and pork imports from the world amounted to more than 7 million tons, making China the largest market share. In 2016, the price of live hogs in China reached a record high and reached the highest price in the world. This made many pig breeding companies in the United States happy to call and have increased production capacity according to the needs of the Chinese market. At this time the increase in tariffs, the US pork’s price advantage will be significantly reduced, the original market share may also be stolen by the EU countries. U.S. pig-raising companies are likely to face overcapacity and losses this year.
Meat processing leader Shuanghui fear of shock
As the downstream of the pig breeding industry, meat processing companies have also been affected by fluctuations in the cycle of pigs for many years. Low-priced pork raw materials in the United States are extremely attractive to the industry.
In May 2013, Shuanghui International announced the acquisition of all the shares of Smithfield, the world’s largest pig producer and pork supplier, and became the largest acquisition case in Sino-American history. Since then, Shuanghui International has changed its name to Wanzhou International and successfully landed on the Hong Kong Stock Exchange, becoming the world’s largest pork food company.
When domestic hog prices hit a record high in 2016, and meat processing companies reported losses, Shuanghui Development succeeded in earning profits by importing cheap pork from the United States. In an investor exchange activity at the time, Wan Long, chairman of Shuanghui Development, said in response to a reporter’s question that in the face of rising production costs, Shuanghui has realized a reduction in costs by storing meat raw materials in advance and improving production processes. effect. Smithfield, United States, provided Shuanghui with a large amount of low-quality, high-quality meat raw materials and became its “secret weapon” to counter the strong cycle.
Bandung said that the United States is a big producer of pork and the price is far below the Chinese level. Therefore, Shuanghui will continue to offset the pressure of increasing costs through cheap imported pork. According to public data, in April 2016, the US pork price was equivalent to RMB 6.8 yuan/kg, the imported pork CIF was about RMB 14/kg, and the domestic pig white strip factory price was as high as RMB 25/kg, which was imported meat. Nearly 2 times.
The financial report shows that in 2015, the total amount of Shuanghui’s purchase of pork segmented meat, split meat, bones, and by-products directly or indirectly from the United States was 2.80 billion yuan. By 2016, Shuanghui Development and the indirect controlling shareholder Rotex Co., Ltd. achieved a purchase amount of 4.19 billion yuan. In 2017, the domestic pork price went down. The amount of indirect purchases made by Shuanghui Development decreased to RMB 3.308 billion. Shuanghui’s cost control technology has been affected by trade frictions between China and the United States, and the market has responded to this.
As early as March 23, the Ministry of Commerce announced that it intends to levy tax on 128 tax products including pork, Hong Kong shares Wanzhou International once fell more than 10%, closed down 4.65%, reported to 9.03 Hong Kong dollars, A shares listed The company’s Shuanghui Development also reported a drop of 0.74% on that day, and the price per share was 26.74 yuan. Yesterday, Shuanghui Development fell 3.12% to 24.8 yuan per share.
“At present, Shuanghui faces a dilemma. If Shuanghui continues to import pork from the United States, the cost advantage has disappeared. However, if it is not imported, the sales of Smithfield will inevitably be affected, which in turn will affect the performance of Wanzhou International,” said Feng Yonghui. Shuanghui’s profit in the past two years was significantly better than its peers, mainly due to low costs. For high value-added products such as ham and sausage, anyone who has a low cost will make money. In the past, Shuanghui used US pork raw materials, and the cost of Chinese pork was 30% to 50%. Once the 25% tariff was imposed, the original cost advantage was greatly reduced. Affected by the Sino-US trade war this year, the American pig breeding industry will also face excess capacity, which will have a severe impact on Smithfield’s performance.
As of press time, the relevant person in charge of Shuanghui Development has not given the reporter a response to the issue of the impact of the US import of pork tariffs on the company. At the Wanzhou International Performance Briefing held on March 27th, the president of Shuanghui Development Ma Xiangjie stated that the trade war has limited impact on Shuanghui: On the one hand, because the price of domestic pork is expected to continue to decline this year, the pork import volume of the company will decrease; On the one hand, companies in the United States can avoid trade war risks by reselling other overseas markets.
In addition to the issue of trade wars, Shuanghui Development also had to face the situation that for the first time since the listing, revenue and net profit fell. According to the 2017 annual report disclosed by Shuanghui Development on March 27, the company achieved operating income of 50.447 billion yuan, a year-on-year decrease of 2.65%, and net profit of 4.319 billion yuan, a year-on-year decrease of 1.95%.