From China's Surge to Brazil's Drought – What Lies Ahead for Ag Commodities

China's Surging Ag Prices, Meat Shortages, and Global Implications

At Against All Odds Research, we've been closely monitoring recent developments in the Chinese agricultural market, and there's a significant story unfolding. Over the past month, Chinese agricultural prices have seen a remarkable surge, signaling a major bullish reversal—a strong buy signal. Historically, Chinese agricultural prices have acted as a leading indicator for U.S. agricultural prices. This suggests that we could expect a substantial resurgence in U.S. agricultural commodities, potentially as early as the 4th quarter of 2023, with some markets showing signs of improvement already.

Adding to this dynamic, the African Swine Fever has created a shortage in meat protein, which is expected to peak in scarcity by mid-2024. This impending shortage is likely to fuel increased Chinese imports of pork, beef, chicken, and various milk powders. As China strives to rebuild its hog herd by year-end, there will be a significant demand for feed ingredients like bean meal, canola meal, dry whey, and corn/low-quality wheat feed.

We anticipate that China's demand for agricultural products will surpass current consensus expectations, resulting in tighter balance sheets. Additionally, concerns over drought conditions in North Central and West Central Brazil during this growing season are impacting crop expectations. This, coupled with ongoing issues such as India's poor monsoon and widespread export bans/restrictions, could make the period from the 4th quarter of 2023 to mid-summer of 2024 particularly exciting for various agricultural markets. Stay tuned for more updates as we navigate these dynamic market conditions.

DB Agriculture Fund DBA