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Bacon is about to get more expensive

CNN logo CNN 4/23/2019 By Anneken Tappe, CNN Business
a variety of flyers on a counter: Centrella brand bacon sits on display at a supermarket in Princeton, Illinois, U.S., on Thursday, Aug. 14, 2014.© Daniel Acker/Bloomberg/Getty Images Centrella brand bacon sits on display at a supermarket in Princeton, Illinois, U.S., on Thursday, Aug. 14, 2014.

African swine fever is plaguing China's pork production. The disease is killing multitudes of animals, hitting the global pork supply chain, and driving up prices.

China is one of the biggest producers of pork in the world, with around half of the meat's global output. China's pork production has fallen 10% this year, according to US government statistics.

To meet China's insatiable demand for pork products, the country is turning to imports, which are expected to hit a record high in 2019. The European Union, Brazil, Canada and the Unites States are providing the goods.

"China normally accounts for 49% of global pork consumption, while consuming 28% of the world's meat supply," said Arlan Suderman, chief commodities economist at INTL FCStone. "As such, this is a big problem for China, and we expect it to be a five to seven-year problem before production can be restored."

While prices for lean hog futures — which are traded like other agricultural products such as corn or soy — have skyrocketed, the difference between wholesale and retail pork prices in the United States has been stable over the past few months, according to data from the USDA.

But hog prices are near a four-year high and futures for June have rallied nearly 30% since the beginning of March. At some point, the price increase will be too big for retailers to shoulder the burden if the problem sticks around.

China will likely do what it can to get pork supplies destined for US consumer and others to its own shores to stem the shortfall, "pushing pork prices upward until the consumer shift to poultry, beef and other options," said Suderman.

He sees it "as a long-term issue that will rise the price of virtually all meat worldwide."

Last year, China produced 54.8 million metric tons of pork, and consumed nearly 60 million tons.

By February, China had slaughtered nearly 1 million pigs over six months as it struggled to contain the outbreak of the swine fever, a highly contagious and fatal disease for pigs that is not harmful to humans.

Turning to alternative meats, like poultry, will likely help meet the Chinese demand. But production constraints — such as a limited number of refrigerated ocean freighters — will limit the extent to which other meats can fill the gap.

All in, China will have a total meat shortfall of 16.2 metric tons over the coming year, Suderman estimated.

The increase in pork prices could also show up in China's closely watched economic data.

"Pork prices have large implications for Chinese and emerging market inflation given food prices are the largest factor in consumer inflation and the main component is pork," said Nicky Shiels, commodities strategist at Scotiabank.

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Correction: An earlier version of this story misspelled Nicky Shiels' last name.

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