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ETFs & Stocks in Focus as China Plans to Import Pork

Sweta Killa

With the 70th anniversary of the People’s Republic of China around the corner, the country has been concerned about the impact of the spike in pork price on economic growth. This is because the price of the staple food jumped 47% in August due to an outbreak of African swine fever, a fatal pig virus that has reduced the Chinese herd, curtailing supply of pork.

In fact, the disease has already resulted in China losing more than 100 million pigs over the last year, and it could end up killing up to half of its pig population.

In order to stabilize pork price, China wants to increase purchases of pork from overseas, including the United States and European Union. The plan will also aid Beijing’s potential move to ease trade tensions with Washington by resuming imports of U.S. farm goods ahead of talks in coming weeks. Beijing imposed retaliatory tariffs of 50% on imports of U.S. pork last year and raised tariffs by another 10% on Sep 1. The move has brought the total tariff on U.S. pork to 72% compared with 12% duty prior to the trade war (read: ETFs in Focus as Trade War Takes a Toll on Chinese Exports).

China has bought about a million tons of pork so far this year, of which about 87,771 tons were from the United States, according to Chinese customs data. According to Vice Premier Hu Chunhua, increased imports will only address supply shortages and not the halt in soaring price of pork. China is likely to see a 10 million ton pork deficit this year and more than the roughly 8 million tons in annual global trade.

Market Impact

The news of China buying pork has resulted in an astounding rally in the U.S. lean hog futures market. U.S. lean hog futures climbed the daily exchange-imposed limit on Sep 12 and the Chicago Mercantile Exchange (CME) temporarily expanded the trading limit to 4.5 cents.

That said, we present some ETFs & stocks that are the biggest beneficiaries of the China buying pork and lean hog rally:

iPath Bloomberg Livestock Subindex Total Return ETN COW

The ETN provides exposure to the Bloomberg Livestock Subindex Total Return, which reflects the returns that are potentially available through an unleveraged investment in the futures contracts on livestock commodities. It has accumulated $8.5 million in its asset base while charges 75 basis points (bps) in annual fees (read: Japan-US Deal in September: ETFs to Shine).

VanEck Vectors Agribusiness ETF MOO

This fund is by far the most popular choice in the space with AUM of about $673 million. It tracks the MVIS Global Agribusiness Index, which measures the performance of companies involved in agri-chemicals, animal health and fertilizers, seeds and traits from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. In total, the fund holds 55 securities in its basket and charges 54 bps in annual fees (read: John Deere Misses But Shares Up: Agribusiness ETFs in Focus).

Tyson Foods Inc. TSN

It is one of the world’s largest food companies that processes live fed cattle and live market hogs; fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, as well as case ready beef and pork, and fully-cooked meats; and raises and processes chickens into fresh, frozen, and value-added chicken products. The stock witnessed negative revision of 41 cents for fiscal year (ending September 2019) over the past 30 days and represents year-over-year earnings decline of 11.04%. It has a Zacks Rank #3 (Hold) and a VGM Score of B.

Pilgrim's Pride Corporation PPC

It is engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products in the United States, the United Kingdom, Europe and Mexico. The stock saw negative earnings estimate revision of couple of cents for this year over the past 30 days but has a solid estimated earnings growth rate of 53.91%. It has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

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