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When pigs fly

We grew up in Missouri in the middle of the United States and where we were surrounded by farmers. When someone in our town would say something incredulous like, “I can slam dunk like Michael Jordan.” We’d say “Yeah right when pigs fly!”

Well, it may sound incredulous but what’s going on with pigs in China is nothing less than shocking and certainly, the pigs there wish they could fly away to escape it. As you’ve probably heard by now there’s a serious virus impacting pigs in China called African Swine Fever (ASF). The virus is both terminal and contagious for pigs. Some are even calling it pig ebola.

The reality is that this outbreak is sweeping through China and it’s going to change protein consumption for the entire country. China is both the largest domestic producer of pork in the world and the largest importer. It’s estimated that China represents more than 50% of the entire world supply of pork. Various experts believe that somewhere between 200-400 million of China’s pigs will be slaughtered either due to infection or to stop the infection from spreading. That’s a massive number and if it’s on the higher side would represent destroying 100% of their pigs.

Structurally this will disrupt pork supplies for the next decade and that’s if we don’t see ASF spread to Western Europe, Latin America, and the United States. Already reports are surfacing of the virus being found in Vietnam, Cambodia, South Korea, and other countries.

The way to navigate this structural imbalance from an investment perspective in our opinion is a direct investment in U.S. lean hogs which are up 18.45% YTD. Would you rather buy overpriced equities or underpriced pigs? Call us simple but we’ll bet on pigs easily outperforming over the next 5 years.

The trade war between the U.S. and China has made this a bumpy ride but at the end of the day, China has no choice but to import pork from everyone around the world, including the U.S. or dramatically change dietary habits.

Agriculture has been a large talking point for President Trump in his negotiations with President Xi. Most of the push for purchasing U.S. agriculture has been made to support President Trump’s voter base. When Trump realizes that he has increased negotiating leverage because of ASF he will surely use it.

Furthermore, China’s crops are threatened by armyworm which destroys corn, rice, and soybean at devastating rates. We’ll be discussing that next week. We don’t wish to see citizens of any country lacking in food security especially when politicians use it to leverage power. Unless pigs fly however that’s exactly what politicians will do.
Chances are you haven’t been reading about a lot of flying pig investments in mainstream media. Your private bank may be encouraging you to buy bonds in Europe even though their yield is negative or telling you to invest in Tesla with its outrageous cash burn and out of this world valuation.

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