Wake Up and Haul the Bacon

[greyhounds]

schlimm

Ken;  I agree with you [mirabile visu!!]  and have also found the progression of thoughts 'interesting" to say the least in the search for hidden motives.  Seems like pretty straight forward market economics.  

Iowa has been the center of US pork production because, in part at least, it is where the feed is from.  However, if exports increase sufficiently, the market may lead to some production moving to the west coast, closer to the ports, since it is probably cheaper to transport corn than pork 2000 miles.

At the risk of ruining our mirabile visu moment, I don't see pork production moving to the west coast.

I takes 7.7 pounds of grain to create one pound of pork.  So you'd have to ship 7.7 times as much tonnage.  It may be cheaper to ship a pound of grain than a pound of pork, but you have to ship much more grain.  And those grain cars would return to the Midwest empty.  2,000 empty miles would have to be covered by the freight rate on grain to the west coast.

Conversely, an empty refrigerated container that needs to be moved eastward  from the west coast can be loaded with all kinds of good things to eat.  Such as lettuce, broccoli, carrots, etc.  California does produce almost half of the fresh fruits and vegetables for the US.   (And export to eastern Canada.)   Washington state produces 59% of the apples.  Idaho and Washington produce about one half of the potatoes.  Loading the equipment both ways does produce a lot of cost savings.  Pork west, potatoes east.  Meat and potatoes.  Money on the bottom line.

If it made economic sense to process hogs on the west coast there would be some plants there.  People out west do eat pork. As it is, there is only one hog processing plant of any significant size on the west coast.  That would be Clougherty (Hormel owned) at Vernon, CA.  I show it as having a modest capacity of 7,300 head per day - not near enough for the population.  (Figure 144 pounds of useable pork product out of each head.)

They've built their "Farmer John's" brand around being locally produced.  They scored big 40 years ago when they came out with "Dodger Dogs" and became the supplier of hot dogs for the Dodger games.  The "locally produced" familiar brand is worth something in the southwest, but it won't play in China.  The hogs for Clougherty aren't raised in California.  They come in live from out of state.  This used to be one of the few remaining livestock moves on US railroads.  (UP from Nebraska).  But now they source live hogs from Arizona and other western states.  I'd guess Hormel sees more value from the local brand than the extra cost of  processing the hogs in California.

Anyway, there is a significant movement of animal protein to the west coast from the Midwest and the south.  (Pork, beef and chicken.)  The truckers who move this come back from the west coast with produce.  It is quite irritating to me that the railroads don't go after this market.  It will be even more irritating if the railroads don't grab the increased pork exports to China.

 

 

 

[Anonymous]

Nobody is looking for hidden motives.  That makes it sound so sinister and conspiratorial.  What may appear to be a search for hidden motives may instead be simply highlighting facts that are not apparent to everyone.  This may very well be a free trade, free market, free will transaction.  But I am not sure where the boundaries of that definition lie. 

Let’s get down to specifics.  Give me an example of what would not be a free trade, free market, free will transaction.  And show me what has been said in this thread that would indicate a refusal to believe that this is a free trade, free market, free will transaction.

[schlimm]

greyhounds

This thread has been a real learning experience for me.

First, here's some detail on 2012 US pork exports.  Last year, 23% of US pork production was exported.  China was the 3rd largest importer of US pork in terms of tonnage.  They received 431,145 metric tons of US pork.  I equate that to 22,631 containers loaded at 42,000 pounds per container.

http://www.usmef.org/downloads/Pork-2003-to-2012.pdf

So shipping US pork to China, Japan, S. Korea, Mexico, etc. is nothing new.

On the surface this appears to be nothing more than a free trade, free market, free will transaction.  A company headquartered in Hong Kong has concluded that it can make some more money by importing more US pork for Chinese consumption.  They could do this in various ways, but they decided it was best to just buy the largest US pork producer.   The US producer wasn't doing all that well financially and agreed to the deal.

If this remains a free market situation everybody will benefit.  The Chinese who buy US pork will experience a net gain in welfare otherwise they won't make the purchase.  The Americans who raise and sell the pork will also experience a net gain in welfare otherwise they won't make the sale.  That's on the surface.  Below the surface, well I've seen absolutely nothing to indicate that there is anything below the surface.    

And that was the learning experience for me.  I was totally surprised by many of the responses on this thread.  Some posters just refused to accept the concept that this is a straight up free market deal.  The US has pork, the Chinese people want more pork.  Let's make a deal.  But some folks just cannot accept that.  I'm not sure why they can't accept that, but I'm glad I learned that they can't.

Getting back to the railroad opportunity, which was my original point;  US pork production is centered in and around Iowa.  That's a long way from any port.  As pork exports to China increase, which is the whole point of this transaction, the railroads will have a great opportunity to haul the containers from the point of production to the ports.  If they play the right cards.  Hopefully, they will.

Ken;  I agree with you [mirabile visu!!]  and have also found the progression of thoughts 'interesting" to say the least in the search for hidden motives.  Seems like pretty straight forward market economics.  

Iowa has been the center of US pork production because, in part at least, it is where the feed is from.  However, if exports increase sufficiently, the market may lead to some production moving to the west coast, closer to the ports, since it is probably cheaper to transport corn than pork 2000 miles.

[greyhounds]

This thread has been a real learning experience for me.

First, here's some detail on 2012 US pork exports.  Last year, 23% of US pork production was exported.  China was the 3rd largest importer of US pork in terms of tonnage.  They received 431,145 metric tons of US pork.  I equate that to 22,631 containers loaded at 42,000 pounds per container.

http://www.usmef.org/downloads/Pork-2003-to-2012.pdf

So shipping US pork to China, Japan, S. Korea, Mexico, etc. is nothing new.

On the surface this appears to be nothing more than a free trade, free market, free will transaction.  A company headquartered in Hong Kong has concluded that it can make some more money by importing more US pork for Chinese consumption.  They could do this in various ways, but they decided it was best to just buy the largest US pork producer.   The US producer wasn't doing all that well financially and agreed to the deal.

If this remains a free market situation everybody will benefit.  The Chinese who buy US pork will experience a net gain in welfare otherwise they won't make the purchase.  The Americans who raise and sell the pork will also experience a net gain in welfare otherwise they won't make the sale.  That's on the surface.  Below the surface, well I've seen absolutely nothing to indicate that there is anything below the surface.    

And that was the learning experience for me.  I was totally surprised by many of the responses on this thread.  Some posters just refused to accept the concept that this is a straight up free market deal.  The US has pork, the Chinese people want more pork.  Let's make a deal.  But some folks just cannot accept that.  I'm not sure why they can't accept that, but I'm glad I learned that they can't.

Getting back to the railroad opportunity, which was my original point;  US pork production is centered in and around Iowa.  That's a long way from any port.  As pork exports to China increase, which is the whole point of this transaction, the railroads will have a great opportunity to haul the containers from the point of production to the ports.  If they play the right cards.  Hopefully, they will.

[Anonymous]

schlimm

Bucyrus

Murphy Siding

Bucyrus

  

Since it is said that the point of the acquisition was to lock in more supply, then it might be that Shuanghui would sacrifice the higher price of pork in the U.S. market in order to increase supply in the Chinese market.  

     Did you hear the one about the  Chinese company that bought an American pork processor, in order to sell American pork at lower prices in China?  Me neither.

I don’t think you are looking at it deeply enough.  Every pork chop Shuanghui sells in the U.S. is one less pork chop they sell in China.  It is true that the U.S. chop sells at a higher price.  But they bought Smithfield to close the production shortfall in China, and to improve the Shuanghui brand in China, so they might prioritize serving the Chinese market. 

And considering that they are currently producing 33 times more pork for China than Smithfield produces for the U.S., Shuanghui might decide that it makes better business sense to sell the Smithfield pork in China (although at a lower price) in order to help improve the supply and brand in China where the bulk of their business will be.  In the big picture, they might actually make more money doing that despite sacrificing the higher prices of the smaller U.S. market. 

And furthermore, the U.S. pork market is shrinking while the Chinese market is growing, so they might want to favor the Chinese market with brand and supply improvement rather than go after the higher price of the shrinking U.S. market.

And still furthermore, I believe the U.S. Smithfield market will be damaged by the reputation of Shuanghui ownership.  If that proves to be the case, then the U.S. Smithfield market will shrink further.  If they are trying to improve their brand image in China and in the world, they might be well served by not getting the publicity of butting heads with brand resistance in the U.S. even though they will get a higher price here.

Considering all of those things together, I expect nearly all of the Smithfield pork production to go to China.  And I also expect Shuanghui to expand the Smithfield production in the U.S. as much as regulations and environmental capacity can support.  I don’t know what the limit of the Smithfield production would be, but I would guess that it will be met before the Chinese pork shortfall is ended.

So that would be all of pork that even a greatly expanded Smithfield can produce going to China by rail and sea, while other U.S. producers take up the slack and fill in the missing U.S. production from Smithfield.    

That is pure speculation and seems to be largely a rationalization for your distaste for a US corporation being bought by a Chinese one.

 

No it is not pure speculation, but I am connecting some dots, and in those areas it is indeed my opinion or speculation.  I have read a lot of articles on this acquisition, and most of what I said is presented in those various articles either as a documented fact or as their opinion.  They connect dots too.  And what is wrong with speculation?  Everybody does it.  I find the acquisition interesting for its many tentacles of business and marketing principles.  I believe it is unprecedented, and I am not sure if anybody completely comprehends all of the implications of the deal.

If you think that it seems that what I said is largely a rationalization for my distaste for an American company being bought by a Chinese company, then that is your perception, but it is not accurate.  And I also have to wonder what you are implying by that comment.   Why would I have distaste for an American company being bought by a Chinese company?   

I would prefer not to have jobs go to China, but I don’t blame the Chinese.  It is a national policy issue for the U.S.  But in any case, the Chinese buying companies in the U.S. is entirely different than U.S. jobs being outsourced to China.  The results are entirely different.  I could not care less if China bought every business in the U.S.  They would still have to use U.S. labor, and follow U.S. regulations.  If the Chinese were to invest their wealth in U.S. industry, it would spur expansion and job creation in the U.S.  But why would they do that when they can invest for a better return in their own economy?  That question is what makes this acquisition so interesting.        

    

[Convicted One]

Bucyrus

Or-- will Shanghui forego sales of U.S. produced pork to the U.S. market, leaving U.S. demand unfulfilled, and divert U.S. pork production to the Chinese market? 

I expect it to be the latter, but some might say that is hallucinatory unless the Chinese market prices the same as the U.S. market, which it probably cannot do.

I read the abusive  delusional ad homs in that other post, and would say I was shocked, except considering the source, what else is there to expect? (LOL)

I tend to agree with you, that something OTHER than profit (shock and awe) is the prime motive. probably a good time to buy stock in Smithfield's competitors.

[Anonymous]

Convicted One

Bucyrus

But what would you say to those who believe that Shanghui will sell to the highest priced market first, with only the excess production going to the lower priced Chinese market? 

I would say that the Chinese are not buying Smithfield to use as a conduit to sell far eastern pork to the American Dinner table. They are buying it to place more pork on the Chinese dinner table.

I agree with that, but it misses the point of my question because I did not make it clear.  When I referred to Shanghui selling to the highest priced market first, I meant selling the Smithfield or U.S. produced component of their production.  I did not mean to include the component produced in China.

Will China only sell U.S. pork to the Chinese market once it has sold all to the U.S. market that the U.S. market demands? 

Or-- will Shanghui forego sales of U.S. produced pork to the U.S. market, leaving U.S. demand unfulfilled, and divert U.S. pork production to the Chinese market? 

I expect it to be the latter, but some might say that is hallucinatory unless the Chinese market prices the same as the U.S. market, which it probably cannot do.

[daveklepper]

More on Kosher, to answer questions.   Talked with my more ultra-Orthodox teacher and other teachers:

1.   Kosher is Kosher as far as transportation.   No one gives a hoot if the truck, airplane, container, trank car, regular freight car, or whatever, was used to carry pork or even fetilizer once the car is clean enough to carry Kosher products.

2.   A tank car is like a food implement or pot or pan, used in a restaurant.   Cleaning with supervision by a Mashgiiya is required.   But if the movement is regular, the Mashgiiya can give just spot checks, not required every day or each load, once he has confidence that the workmen will follow the procedures.

4.   Packaged food in regular freight cars require no special treatment of the freight car.   Refrigerator cars can carry exposed food along with non-Kosher food, meat and milk, as long as the car is kept cold at all times, and the non-compatible food doesn't  make any contact.

5.  Ultra-Orthodox look at the lable and trust it.  They don't inqurire as to what the shipping practices are.

6.   One hour boiling of a non-Kosher food iimplement may not be required.  A minute or  two may be enough.   But none source says conversion from meat ot millk or visa versa is never ever done.  Unnless the meat implement is accidentally used for milk, making it non-Kosher, then it can be made Kosher for either meat or milk by the boiling water.   Boiling pot that is too large to be put in another pot is done by filling and then letting the boiling water overlow and cover the sides.

[BroadwayLion]

Convicted One

As I recall, even a small rise in the cost of shelled corn caused all meat prices to spike a few years back. With the producers using  the rise of ethanol production as an excuse to raise their prices. I don't recall 'excess supply capacity' coming into play and driving prices back down then, and I don't expect any different result today.

The devil is in the details. Table corn and Ethanol corn are not the same at all and are not interchangeable. The farmer must decide what he is going to grow at the beginning of the growing season. And if the ethanol plants were using saw grass, then that is what the farmers will grow and so the use of corn for ethanol is quite moot. Another point is, that in selling corn to the ethanol plant the farmer by-passes ADM (Archer Daniels Midland), and can command a better price for his crop.

From corn used to make ethanol, brewer's yeast is a by-product used for cattle feed.

The biggest stumbling block is, as you might imagine, is the Federal Government. A bunch of green-painted do-gooders thought it would be a good thing to take farm land out of production and put it into conservation. (CRP). Once signed up for CRP the land is out of production for five to 10 years, maybe more. Ethanol came to town, and farmers were scrambling to renig on their contracts and to put land back into production. Some could buy out and others could not. (Think rails to trails).

Still farm inputs are expensive, the farmer must take out a farm loan in the hundreds of thousands of dollars, and then pay it back when the crop comes in. You have to be a good manager to be a farmer since you only get paid once a year.

In Dairyland, cows were take out of production, (butchered) to reduce milk supply and support the milk price. The government paid milk producers to go out of business. Once out it is hard to start up, and since they sold not just the cows, but the right to run milk cows on the land, the bridges have been burnt.

Still, we can Grow, baby Grow!, and we can produce.

ROAR

[Convicted One]

BroadwayLion

  we are nowhere near full farm capacity,

And as that surplus capacity is diminished, a corresponding price increase will follow.

[Convicted One]

BroadwayLion

. The factor that gets lost is that we are nowhere near full farm capacity, and we can grow and/or raise enough food to feed the world

And when that "ramped up" production starts depleting feedstock supplies, what will happen to the cost of feedstocks?

As I recall, even a small rise in the cost of shelled corn caused all meat prices to spike a few years back. With the producers using  the rise of ethanol production as an excuse to raise their prices. I don't recall 'excess supply capacity' coming into play and driving prices back down then, and I don't expect any different result today.

[Convicted One]

Bucyrus

But what would you say to those who believe that Shanghui will sell to the highest priced market first, with only the excess production going to the lower priced Chinese market? 

I would say that the Chinese are not buying Smithfield to use as a conduit to sell far eastern pork to the American Dinner table. They are buying it to place more pork on the Chinese dinner table.

[Convicted One]

Murphy Siding

And still furthermore..

Originally I was going to say 'only to find a forum moderator and a lumber salesman shackled to the wall",. but I suspected you might find difficulty embracing the notoriety.

[Anonymous]

Here is an article that tells us not to worry about a U.S. consumer backlash against Smithfield due to the acquisition by Shanghui.  The article dances around the issue of China’s food reputation affecting Smithfield, and is able to nervously dismiss it after a struggle. 

Well first of all, if they are sure that Americans won’t change their buying habits, why even bring it up?

But the real jewel of this article is the conclusion that Americans won’t change their buying habits over the issue because they won’t know where the product comes from.  Yet that is precisely why Americans will question the quality of the Smithfield product.   

http://www.cnbc.com/id/100777347

 Quote from the article:

"From a consumer stand-point, it's a huge non-event," Karp said of the Smithfield deal. "It [the question of food safety associated with Shanghui] will likely not have much of an effect."

When consumers go into a market, they're likely going to focus on what's on sale, which cuts of meat look good and then maybe narrow it down to a few of their favorite brands, Karp said. "But you may or may not even know which are Smithfield brands, since they're also Farmland, they are Armour, and Eckrich, and Carando and they own Gwaltney," Karp said, listing off just some of Smithfield's subsidiaries.

[My emphasis added]

[Anonymous]

BroadwayLion

Bucyrus

And you are right that diversion of U.S. pork production to China will reduce the U.S. supply and raise the price. 

It will NOT reduce supplies or raise the price. The factor that gets lost is that we are nowhere near full farm capacity, and we can grow and/or raise enough food to feed the world IF SOMEONE WANTS TO *BUY* THE PRODUCT.

ROAR

I was referring to a diversion of U.S. pork supply to China, which is the stated goal.  That most certainly would reduce the U.S. supply and raise the U.S. price.  But you are right that U.S. production can be ramped up to make up for the diverted supply, and that will bring the price back down.

Althought it could be that the growing Chinese demand could raise pork prices world wide, including the U.S.

[BroadwayLion]

Bucyrus

And you are right that diversion of U.S. pork production to China will reduce the U.S. supply and raise the price. 

It will NOT reduce supplies or raise the price. The factor that gets lost is that we are nowhere near full farm capacity, and we can grow and/or raise enough food to feed the world IF SOMEONE WANTS TO *BUY* THE PRODUCT.

ROAR

[Murphy Siding]

Convicted One

Firelock76

I'm glad you and your friends enjoyed the joke but someone must have taken exception to it because it's GONE!

Okay, a priest, a rabbi, and a politician walk into a blood stained boxcar, and find a forum moderator shackled to the wall....the politician asks  "Are you going to bless this car, Rabbi?  And the Rabbi shrugs with a nod  towards the moderator and says:

This joke needs a punch line. use your imagination!!

  And still furthermore....

[Anonymous]

Convicted One

Bucyrus

while other U.S. producers take up the slack and fill in the missing U.S. production from Smithfield. 

Doubtlessly this will be the true end result.

I've read this thread for some time now, and I cannot see how those who claim this development will result in cheaper pork for american tables, can take themselves seriously.

How does the disappearance of excess supply customarily affect the marketplace? What effect has the rise in Chinese demand for petroleum products had on the price we pay at the pump? What reasonable expectation can someone have that the end result for pork will be any different than it has been for gasoline?

Smithfield's competitors will surely fill the void left in the American market by Smitfield's exports to China, but will do so at a higher price, thanks to less domestic competition.

Well there is the general assumption that Chinese production is more cost competitive, and so it results in the lowest price.  However, that assumes Chinese labor and Chinese regulations in China.  I don’t see how that advantage can apply to the Chinese owned Smithfield operation in the U.S.

And you are right that diversion of U.S. pork production to China will reduce the U.S. supply and raise the price. 

But what would you say to those who believe that Shanghui will sell to the highest priced market first, with only the excess production going to the lower priced Chinese market?  Under that model, production and price for the U.S. pork market should remain the same.   

[Convicted One]

Firelock76

I'm glad you and your friends enjoyed the joke but someone must have taken exception to it because it's GONE!

Okay, a priest, a rabbi, and a politician walk into a blood stained boxcar, and find a forum moderator shackled to the wall....the politician asks  "Are you going to bless this car, Rabbi?  And the Rabbi shrugs with a nod  towards the moderator and says:

This joke needs a punch line. use your imagination!!

[Convicted One]

Bucyrus

while other U.S. producers take up the slack and fill in the missing U.S. production from Smithfield. 

Doubtlessly this will be the true end result.

I've read this thread for some time now, and I cannot see how those who claim this development will result in cheaper pork for american tables, can take themselves seriously.

How does the disappearance of excess supply customarily affect the marketplace? What effect has the rise in Chinese demand for petroleum products had on the price we pay at the pump? What reasonable expectation can someone have that the end result for pork will be any different than it has been for gasoline?

Smithfield's competitors will surely fill the void left in the American market by Smitfield's exports to China, but will do so at a higher price, thanks to less domestic competition.

[narig01]

My two cents worth

One of the places where I used to get a trailer cleaned (washed out) offered Kosher washouts. When I asked I was told they were inspected and certified to comply with Jewish dietary requirements. Also the difference in price a regular washout was $30 whilst a Kosher one was $55.

Meat products tend to be fairly dense. One can fill a 40ft container and not cube out.IE you can fill the container to its weight capacity and still have a lot of room left inside. Having air space in a container for airflow is a necessity. Fresh meat is palletized more to insure airflow then for handling.
If I remember K Line and Maersk are two of the larger providers of refrigerated containers.
Rgds IGN

[Anonymous]

Murphy Siding

Bucyrus

There is a pent up demand for pork in China because scarcity has kept the price too high for much of the market to afford.  But now, with China’s new prosperity from manufacturing, more people have the money needed to buy pork.  That is the reason for the sudden surge in pork consumption in China.  The pent up demand is suddenly unconstrained, and able to be fulfilled if the supply is made available.   

[Red is emphasis added by Murphy Siding]

     Only if the Chineese are willing to pay what others around the world (The USA for example) are willing to pay for the goods.

Even if you  are a communist country, the laws of supply and demand are still applicable.

That is fundamentally true, but while capitalism calls for selling at the highest possible price, it is often possible to make more money by selling at a lower price, because it attracts a larger market and more sales.  So price is one factor but market size is also a factor.   The Chinese pork market is vastly larger than the U.S. market, so it might pay to cultivate the larger market by temporarily subsidizing that market with prices lower than the U.S. price.   

Look at it this way:  Smithfield pork will be Shanghui pork and Shaghui will be selling pork to both the U.S. and Chinese markets.  Do you think the price to each market will be the same?  China has a communist government.  They take care of people cradle to grave.  They are not going to let their people starve just because the people can’t pay the world market price for food.  The Chinese government will subsidize the world market price to their people without hesitation if they have to.  And they will be entirely able to do so because of their vast wealth from their manufacturing success.  They are in no way committed and bound to the dictates of pure capitalism.

It is true that the laws of supply and demand are inviolable, as you say, but they don’t have to be followed.  And command and control economies such as the one in China are almost defined by choosing not to follow the laws of supply and demand if there is a greater societal reason not to.     

 

[Murphy Siding]

Bucyrus

There is a pent up demand for pork in China because scarcity has kept the price too high for much of the market to afford.  But now, with China’s new prosperity from manufacturing, more people have the money needed to buy pork.  That is the reason for the sudden surge in pork consumption in China.  The pent up demand is suddenly unconstrained, and able to be fulfilled if the supply is made available.   

     Only if the Chineese are willing to pay what others around the world (The USA for example) are willing to pay for the goods.

      Even if you  are a communist country, the laws of supply and demand are still applicable.

[John WR]

Bucyrus

The pent up demand is suddenly unconstrained, and able to be fulfilled if the supply is made available.   

Bucyrus,  

I'm sure you are correct about this.  And of course a steady US demand along with an increasing demand in China is good for US pork producers.  This is certainly not bad news for American railroads.  However, I am more than a little skeptical that it will be a bonanza for U. S. railroads.  I would be very happy to be mistaken on this point but I prefer a wait and see approach.  

John

[Anonymous]

John WR

Bucyrus

And furthermore, the U.S. pork market is shrinking while the Chinese market is growing, so they might want to favor the Chinese market with brand and supply improvement rather than go after the higher price of the shrinking U.S. market.

Bucyrus,  

I have no figures on Chinese pork consumption.   A little web surfing will show that pork is has traditionally been a popular meat in China.  But is there a pent up demand so that the Chinese would suddenly consume a lot more than they now consume?   I'm skeptical.  

John,

There is a pent up demand for pork in China because scarcity has kept the price too high for much of the market to afford.  But now, with China’s new prosperity from manufacturing, more people have the money needed to buy pork.  That is the reason for the sudden surge in pork consumption in China.  The pent up demand is suddenly unconstrained, and able to be fulfilled if the supply is made available.   

[BroadwayLion]

John WR

Finally, China has a lot of rural people.  One advantage of pork is that on a farm of any kind you can raise a single pig for its meat with much of the feed coming from garbage you would normally throw away.  Then you can slaughter it in the fall.  It is almost like free food.  I suspect a lot of Chinese people do this.   I know of people in the US who have done it.  Such people are unlikely to buy pork imported form the US.   

BF (before refrigeration), people in cities used to keep pigs and sheep for same purpose. Economical to feed, and fresh meat when you wanted it. With advent of 'frigeration, city dwellers stopped doing this, and the horse also departed the scene as the primary power for transportation. Ordinances were passed and now, keeping a pig on your roof is rather frowned upon.

ROAR

[John WR]

Bucyrus

And furthermore, the U.S. pork market is shrinking while the Chinese market is growing, so they might want to favor the Chinese market with brand and supply improvement rather than go after the higher price of the shrinking U.S. market.

Bucyrus,  

I don't know that the US market for pork is shrinking.   The Pork Production Board describes it as "remarkably stable" since about 1980 although in 2010 is was down somewhat to 47.9 pounds consumed per person in the US.  However the US Department of Agriculture says in 2010 per capita consumption of pork in the US is 57 pounds.   Perhaps the statistics a gathered a little differently but that doesn't reflect a shrinking market.  

I have no figures on Chinese pork consumption.   A little web surfing will show that pork is has traditionally been a popular meat in China.  But is there a pent up demand so that the Chinese would suddenly consume a lot more than they now consume?   I'm skeptical.  

Finally, China has a lot of rural people.  One advantage of pork is that on a farm of any kind you can raise a single pig for its meat with much of the feed coming from garbage you would normally throw away.  Then you can slaughter it in the fall.  It is almost like free food.  I suspect a lot of Chinese people do this.   I know of people in the US who have done it.  Such people are unlikely to buy pork imported form the US.   

John

[Anonymous]

Murphy Siding

schlimm

That is pure speculation and seems to be largely a rationalization for your distaste for a US corporation being bought by a Chinese one.

      I think you're being too charitable.  That is pure hallucination, brought on by a need to never be wrong. If Chinese companies want to buy American companies, just so they can sell the goods at a lower profit margin overseas, then they certainly have a lot to learn about capitalism.   I think they're smarter than that.

The Chinese may be applying capitalist models to some of their commerce, but they are a communist system.  So I think it is risky (and naive) to conclude that they will approach the Smithfield acquisition purely as an investment in U.S. style capitalistic industry. 

They have bigger fish to fry in China just maintaining social stability their astounding population and economic growth.  With their wealth and growth, they could run Smithfield as a hobby if they wanted to.  If you read the many articles on this acquisition, you will see that the number one objective is to increase the pork supply to China.  The number two objective is to apply the Smithfield production system in China.  They have gotten to where they are today by winning the competition with U.S. industry, not by investing in it.

But, in any case, if this deal follows the direction I am predicting, everybody still comes out a winner.  The Chinese people get the pork they want.  Shanghui gets an improved image along with better domestic production technology.  Smithfield gets to stay in business and probably expand exponentially.  The railroads get a lot of new business.  The pork production supply chain prospers with the increased production.  And new jobs will be created as other U.S. pork producers increase production to meet increased U.S. demand to make up for the shift of Smithfield supply to China.   

[edblysard]

One of the lines from the Bloomberg article indicated that one of the compelling reasons Smithville was purchased was to satisfy consumer demand for better quality products.

American products are seen by the Chinese consumer as “better” than domestic products when it comes to items like prepared foods, fast foods and such.

Keep in mind we are talking about a country that just now has to learn about such things as “consumer demand”…in fact, the entire concept of “retail consumers” and “consumer choice” is almost brand new to them.

Even in their cities, you would find a pig sty or a chicken coop right beside some of their high rise downtown buildings.

Forbes did a article about an Etiquette School started by one of their ministries to teach their corporate executives how to behave in public…no kidding, they had to learn how speak indoors, (in China speaking loudly is the norm) how to sit properly, western table manners, all kind of stuff, because when the executives went overseas, because of their lack of western social graces, they were perceived as oafs and un-cultured, rude beyond what would be tolerated.

Their wives were taught how, when wearing a skirt, to sit in a chair without “flashing” the rest of the room, how to hold a tea cup, how to serve food, the etiquette of small talk, (most meals are eaten in silence there) almost the Ann Landers version of a upper middle class American housewife from the 50’s…it was quite an interesting article because it highlighted the vast cultural differences between western “manners” and social behavior and the eastern version.

I doubt Smithville will simply exclude the American market to focus its entire supply chain to China.

And Smithville will have company there; several American iconic companies have been doing business there for decades…KCF, McDonalds, heck, even Ford and GM have had production plants there for years, the Ford Focus is considered a “luxury” car there, the waiting list to buy the Chinese branded and built version is over two years.

China is finding itself developing a middle class, where there had been none for thousands of years, and the people who really run the country are discovering that, just like in capitalist countries, the middle class will spend every penny it has  in order to keep up with the Jones.

[Murphy Siding]

schlimm

That is pure speculation and seems to be largely a rationalization for your distaste for a US corporation being bought by a Chinese one.

      I think you're being too charitable.  That is pure hallucination, brought on by a need to never be wrong.

      Instead of the King of Siam saying "and so on, and so on..."  I keep hearing Foghorn Leghorn say "and furthermore, and still furthermore..." .

     If Chinese companies want to buy American companies, just so they can sell the goods at a lower profit margin overseas, then they certainly have a lot to learn about capitalism.   I think they're smarter than that.