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.
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.
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.
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.
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.
C&NW, CA&E, MILW, CGW and IC fan
Greyhounds- If pork is going to move from Iowa to west coast port in big quantities, it's either going to go by truck or by train. How many trucks would it take to equal a train of pork chops? My city has a Smithfield packing plant- John Morrel's. I'd estimate that each day, 100 trucks haul boxed pork out of town. There is still a rail spur into the plant, one I've never seen used in the 29 years I've lived here. It seems like it wouldn't take too much imagination to envision load of 10-12 refrigerator cars going out by rail every day.
Thanks to Chris / CopCarSS for my avatar.
Well, getting back to my original point.
Except for that one rather large Smithfield hog plant in North Carolina, (one of eight Smithfield facilities) US pork production is concentrated in and around Iowa. It's concentrated there because that's where the hog food is. It takes 7.7 pounds of grain to produce one pound of pork. It makes more economic sense to ship one pound of pork than 7.7 pounds of grain.
Iowa is a long way from any port. When (not If) this deal increases pork exports to China the railroads will have an opportunity to increase their business. They should do so. They should be talking to Smithfield about this now. That's what I was trying to say.
In addition to export opportunities, the US west coast has minimal pork production. If the railroads can haul pork for export they can haul pork for domestic consumption. Both export and domestic pork going west will create an empty reefer container in California. This is an opportunity, not a problem. Load it back east with California produce. It's a golden opportunity for the railroads. I hope they see it.
I can see how this deal would certainly boost rail traffic. Even if the acquisition sullies the Smithfield brand in the U.S., that brand damage won’t affect the Chinese market. They will see the Smithfield brand as a big improvement over their Shuanghui brand even if the Smithfield brand is compromised in the deal.
I don’t have the exact numbers, but I gather that the shortfall in the Chinese market is much larger than the whole U.S. market. I also understand that the Smithfield production is only 3% of the Shuanghui production. Therefore, I wonder if the Smithfield production could be ramped up sufficiently to serve the existing U.S. market and also make up the entire shortfall in the Chinese market. I would guess that it cannot by a longshot.
If the Shuanghui production is 33 times larger than the Smithfield production; and Shuanghui has a “sizeable” shortfall, it might be that it would require increasing Smithfield production by much more than double or triple in order to make up the shortfall. It would be interesting to know the limit to Smithfield’s potential expansion.
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. So, considering these factors, it seems likely that all the current Smithfield pork production could go to China and still not solve the Chinese shortfall. And if the deal results in any Smithfield brand damage in the U.S. market, then that would leave still more U.S. pork available for Shuanghui to send to China.
Therefore, it might be that the entire Smithfield production will go to China, and that that production will be several times greater than today’s production. And all of that production will go by rail to one U.S. port.
I thought I said anywhere near New Jersey, Dave.
John
John WR: Anywhere? Will you come to Jerusalem or Tel Aviv or Haifa for my next lecture? Probably on sound-isolaton problems between school classrooms?
Bucyrus jeffhergertOne article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place. It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there. That is exactly the point I have been making. Except, I also believe that there will be a counter effect of using the purchase of Smithfield to boost Shuanghui. I think it amounts to a balancing of brand capital. One goes up and the other goes down. The Chinese market will welcome the Smithfield reputation, and the U.S. market will worry about the Shuanghui reputation. It would be entirely different if China simply bought the pork from Smithfield.
jeffhergertOne article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place. It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there.
That is exactly the point I have been making. Except, I also believe that there will be a counter effect of using the purchase of Smithfield to boost Shuanghui. I think it amounts to a balancing of brand capital. One goes up and the other goes down. The Chinese market will welcome the Smithfield reputation, and the U.S. market will worry about the Shuanghui reputation.
It would be entirely different if China simply bought the pork from Smithfield.
I bet the average consumer won't realize that Smithfield family of brands will be owned by a foreign company. How many of us would have noticed this if Greyhounds hadn't started this thread? (Or given it much thought if we had?) My local media, mostly print, has had a few items on this, but I live in Iowa, hog country. National media may have had an item when it was first announced, but have they gave much coverage since?
Any back lash that they may get will probably be because of a special interest group using social media (sensationalizing innuendo and half truths) to influence the general population. This happens from time to time. It will also be less because they are Chinese owned, but more because they raise hogs in confinements and then slaughter them for food.
Jeff
Andrew Falconer This will require more refrigerated containers to be put on a ship to China. What can be hauled back to the USA in the containers that will be sanitary? Andrew
This will require more refrigerated containers to be put on a ship to China.
What can be hauled back to the USA in the containers that will be sanitary?
Andrew
The reefers can (and will) come eastward across the Pacific with "dry" loads. A dry load is freight that does not need refrigeration.
It's common to put dry loads in refrigerated equipment so the equipment can be returned under revenue load.
Example: UPS has a sort facility in Sioux Falls (or they did). They would use their Martrac reefers in TOFC service to move packages to Sioux Falls from Chicago. The refrigeration systems would be turned off westbound.
Once the trailers were made empty out there in meat packer land they'd turn the refrigeration units on and get a load of meat bound for the east coast. Then the trailers would move in TOFC service with a refrigerated load. You cannot get to 0 empty, non revenue miles. But it's best to minimize those miles.
The containers that carry US pork to China will return with bicycles, clocks, lamps, whatever. Not a problem.
edblysard Not sure if it was made clear in my postings, but China didn’t buy Smithville… Shuanghui did, and they are a food distributor in China. Nothing in any of the articles I have read mentions them importing anything into the US. The sole purpose of their purchase was to secure a steady constant supply of quality pork to distribute to restaurants, food markets and fast food franchises, their three major customers. Wall Street market analysts, The US Department of Agriculture, Bloomberg Businessweek Magazine, Forbes and oddly, the Chinese Ministry of Agriculture all predict a severe shortage of domestic pork and pork based products within the next year, as well as the current consumer shortage of chicken. Shuanghui is simply positioning itself to be able to maximize its profits and dominate the supply chain when this shortage occurs. Certain segments of the Chinese bureaucracy have taken to capitalism quite well, and the importation of American food product there is nothing new. China has been struggling to feed itself for the last half century. There are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.
Not sure if it was made clear in my postings, but China didn’t buy Smithville…
Shuanghui did, and they are a food distributor in China.
Nothing in any of the articles I have read mentions them importing anything into the US.
The sole purpose of their purchase was to secure a steady constant supply of quality pork to distribute to restaurants, food markets and fast food franchises, their three major customers.
Wall Street market analysts, The US Department of Agriculture, Bloomberg Businessweek Magazine, Forbes and oddly, the Chinese Ministry of Agriculture all predict a severe shortage of domestic pork and pork based products within the next year, as well as the current consumer shortage of chicken.
Shuanghui is simply positioning itself to be able to maximize its profits and dominate the supply chain when this shortage occurs.
Certain segments of the Chinese bureaucracy have taken to capitalism quite well, and the importation of American food product there is nothing new.
China has been struggling to feed itself for the last half century.
There are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.
One article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place. It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there. So I doubt the Smithfield brands will go away, here or there. Or that it's a scheme to open the door for importing meat from China.
Another article on "Perfect Foods," those that are supposed to be better for us, says Pork tenderloin is as lean as a skinless chicken ***.
I am with Ken on the car loading growth effect…
Cryogenic containers or refrigerated containers from the initial packing plant to LA, boat to China.
Arrives China, emptied, washed, and repacked with pretty much any bagged or packaged product you choose, send the container right back.
With the cyro boxes, no issue at all, with the refrigerated box, you can flip the switch…either way; a box is just a box for the return trip.
While not creating a tremendous uptick in loadings, I can see where both BNSF and UP could build solid “reefer” trains again, and run them at a slightly more premium price.
23 17 46 11
I got it that you got it but not sure others got it…get it?
The melamine scandal and the new “bird flu” have just about killed all plans to import foodstuffs from there.
edblysardThere are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.
I am not sure when the sift to spending US money overseas occurred, but there was a time when money was not supposed to leave the country at all. If you wanted a boat load of beanie babies from China you went to a US firm called a "factor" and gave them your money. They used it to buy, say pigs, and send the pigs to China in return for your beanie babies.
Somewhere along the line we just started doing the same thing with money, and Japan and China began to get all of our cash.
Correct me if I am wrong, but I do believe that is was how things used to be done long, long ago.
ROAR
The Route of the Broadway Lion The Largest Subway Layout in North Dakota.
Here there be cats. LIONS with CAMERAS
edblysard Not sure if it was made clear in my postings, but China didn’t buy Smithville… Shuanghui did, and they are a food distributor in China. Nothing in any of the articles I have read mentions them importing anything into the US.
I only say that China bought Smithfield as a kind of figure of speech because China is the larger entity that makes the deal unique. And I realize that nobody involved with the deal has said that Chinese companies intend to export pork to the U.S. I certainly don’t expect them to do that for a long time, if ever. If they did it immediately, I don’t think it would work. What I see as significant is the potential effect on the Smithfield brand simply due to the purchase by a Chinese company. That will be interesting to watch.
I remember that there was a recent plan to export U.S. chickens to China, so they could process them, and then export them back to the U.S. What ever happened with that?
http://money.cnn.com/2006/05/19/news/international/china_chickendeal/
Thank you again, Dave.
I can see that two dishpans is a lot simpler than boiling everything for an hour. If you ever give a lecture on a dinner train or anywhere else in New Jersey let me know and I'll come.
Just to be clear, I don’t expect China to acquire Smithfield and immediately begin importing Chinese pork to the U.S. I agree that would be a disaster for their acquisition of Smithfield. But in the long run, some degradation of the Smithfield brand might be an acceptable price to pay for boosting the Shuanghui brand in China.
It depends on what China is seeking with the acquisition. On the face of it, this is China outsourcing pork supply. At a deeper level, this is China acquiring the technology to improve their own pork production. At still another level, this is China improving the brand of Shuanghui. I doubt that outsourcing is in the long range plan of China.
Short of actually importing Chinese pork, I don’t know how much impact China’s mere acquisition of Smithfield will have on the Smithfield brand. But it won’t take long to find out. Just Googling around, I see that the issue of food safety related to the Chinese reputation is an obvious concern voiced about the Smithfield acquisition.
There are people who say it won’t make any difference because Smithfield will still be operated under the terms of U.S. regulation. In that sense, it may be a totally unwarranted fear. But regulation is not the only thing that shapes a company. Ownership counts too, and people instinctively know that. Brand is a matter of perception and trust, and reputation is about all a consumer has to go by.
Andrew FalconerWhat can be hauled back to the USA in the containers that will be sanitary?
Flowers.
China and several other countries ship flowers to the USA because we pay more for these than other people pay for wheat or rice. Farmers USA or China go where the money is, although I presume they ship flowers by air.
Watch my videos on-line at https://www.youtube.com/user/AndrewNeilFalconer
If a housewife wishes to use a glass or stainless steel or silver or copper or highly glazed ceramic dish food implement that has been used for milk to be used for meat or visa versa, she can insure it is clean and then submerge it in boiling water for one hour or take it to a ritiual bath ("Mikvah") and submerge it there.
The same procedure applies for using such food implements during Passover if they have been previously used for meals and other food with bread.
With a restaurant or cafe, inspection by a Mashgiya is required because it is no longer a private matter but a public one.
I am a vegetarian (as well as "Kosher") and there is no meat or meat implements in my apartment. And I do regularly use the procedure before Passover.
The exact procedure for a freightcar or truck or airplane interior may be somewhat different. But wagons hauling food existed in Moses's time, and I am sure the Mashgiyyim (plural) have parallel time-honored procedures. It is a specialty.
And if someone wishes to operate a Kosher dinner train with a vintage dining car, it should be perfectly practical to do so. I think one running to Albany from Penn Station and back or from GCT to Poughkeesie could be a winner. On the return the Rabbi would give a lecture.
BonasAll this pork cant be healthy.
True enough, Bonas. But this website is still about trains. Any kind of food produced in large quantities has to be moved. One this railroads are particularly good at is moving heavy bulky loads of stuff. For example, corn, wheat and soybeans. These are basic commodities used all over the world and America raises a lot of them. Moving them by rail in the US began in the mid 1840's when Britain repealed its corn laws and we began to ship wheat there. It has been going on ever since and I don't expect it to end. With China the demand can only increase.
All this pork cant be healthy...most livestock is finished by corn and with GMO tainted corn who knows what can go wrong. We already have diebites problems caused by corn and corn syrup and starches
Los Angeles Rams Guy If this whole thing comes to fruitition as Greyhounds has broken it down, it may not only open up several opportunities on the intermodal front but I also can't help but wonder if it just may open up an opportunity for the railroads to move these hogs to slaughter to the North Carolina facility.
If this whole thing comes to fruitition as Greyhounds has broken it down, it may not only open up several opportunities on the intermodal front but I also can't help but wonder if it just may open up an opportunity for the railroads to move these hogs to slaughter to the North Carolina facility.
I doubt it. If I ever had a "mentor" it was Al Watkins. Al had been there since near the beginning of intermodal. He started by working as a North Shore trainman on their intermodal runs between Chicago and Milwaukee. He then moved to the Erie where he helped write their first intermodal tariff. Then the C&EI where he helped get intermodal going. (The C&EI was the route to/from Chicago for the L&N and the MP.) He was in charge of intermodal pricing at the ICG when I showed up.
He once told me: "The two most difficult things in the world to transport are ice cream and live animals." Al knew what he was talking about.
It's best to move livestock as little as possible. They get stressed and/or hurt. You can't slaughter a "downer" (animal off its feet) for human consumption. The stress can cause weight loss and even change the flavor of the meat. That's why the hog packing plants are centered in and around Iowa. Iowa has the grain for feed and the room for the hogs. The live hogs don't have to be moved very far - and that's a big plus. The large Smithfield plant in North Carolina also draws on locally produced hogs and I don't see that changing. We kill these animals for meat. But we do have an obligation to treat them humanely and do the killing as humanely as possible.
As for this deal leading to the importation of Chinese produced pork with Smithfield brands, I don't see that either. The imported meat would have to be clearly labeled "Smithfield - Product of China". That would greatly devalue the brand in the US. The Chinese company didn't pay $4.7 billion for a brand name only to destroy the brand's reputation.
As Ed mentioned, China has a real infrastructure problem. It's huge population is concentrating along its eastern (Pacific) coast. Their freight rail and roads are inadequate to handle the load. It will be far more efficient to use the "Best in the World" US rail freight system to move pork to a port, then put it on a ship that will dock at one of China's huge port cities.
Nobody can see 50-60 years into the future. But I don't see the probability of significant Chinese meat shipments to the US. Their population wants a better life. That better life includes a better diet. They need all the pork they can get and the more they source pork from here the better off we all are. The US railroads can well benefit from this, if they do wake up and smell the bacon.
Thanks for your support Dave! If yourself or anyone else wants me to post the "little green men" joke again I'll gladly do so!
La Chaim! (Did I spell that right?)
Wayne
From an article in this month’s Forbes, KCF and other chicken sellers in China have devalued by 30% and up due to the bird flu scare, most chickens in China are raised on small local rural farms, and KCF was purchasing locally.
As for the floating pigs, the article surmised they were dumped by the local farmers after they died from diseases and such, again most pork products are locally produced in small numbers.
That river is the tap water source for many cities to boot!
The reasons vary, but one of the main ones is that by buying pre-processed products, most of the food chains and markets are in essence buying America’s efficiencies and cleanliness standards which apparently the average Chinese consumer is willing to pay for that.
Also, as was pointed out, the infrastructure to support a large scale agri- business isn’t there, keep in mind until less than 10 years ago, China had almost no “highways or freeways” anywhere close to those in other developed countries.
I just finished watching a Modern Marvels program about infrastructure here and abroad, and part of it concerned itself with freeway design, the story noted that the average Chinese citizen up until the last 10 years or less, have never driven a car, most drivers licenses issued there are less than 5 years old…in some cities, you have to bid money on a lottery system in order to purchase license plates and register an automobile, upwards of twice the cost of some of the new cars being registered!
An American company is working with the Chinese government in designing the highways being built now, and most existing highways, as we comprehend them, are also less than 10 years old.
Remember, these folks used steam up until recently as their major main line railroad motive power
News items I have read in the recent past have shown pictures of dead hogs floating in the river through Shanghai. Tells me something may be amiss in their agricultural system.
Norm
The only economic advantage that I can see for China to buy U.S. pork is short term in that they simply don’t have the current supply to keep up with their economic growth. But they will get the ability to create their own supply soon enough.
And when they do, there is no way that pork produced in U.S. plants will be able to compete with that produced in Chinese plants, no matter how efficient we think we are. There is an obvious pattern to China’s competitive advantage taking manufacturing out of the advanced countries. And there is no way that buying pork from the U.S. fits that pattern.
Dakguy201 Murphy Siding Wouldn't it be more cost effective to ship the grain to China, and do the hog raising and pork processing there? To take that course of action may drive up your total costs. The reason is something called the feed conversion ratio of animals raised for food. It is an expression of how many pounds of feed are required to obtain a pound of gain in animal weight. Obviously, the ratio varies with the quality of the feed, but as a generalization it is around 3 to 1 for corn fed pork. Moreover, that is measuring the total weight gain of the animal, not the chops, roasts or belly portions that are most in demand. Some offset of that disadvantage occurs in the corn shipment requiring much less stringent shipping methods, but the history of the packing industry in the past half century has been one of moving the plants closer to the producer. That logic applies to raising the animal close to the source of the feed.
Murphy Siding Wouldn't it be more cost effective to ship the grain to China, and do the hog raising and pork processing there?
Wouldn't it be more cost effective to ship the grain to China, and do the hog raising and pork processing there?
To take that course of action may drive up your total costs. The reason is something called the feed conversion ratio of animals raised for food. It is an expression of how many pounds of feed are required to obtain a pound of gain in animal weight. Obviously, the ratio varies with the quality of the feed, but as a generalization it is around 3 to 1 for corn fed pork. Moreover, that is measuring the total weight gain of the animal, not the chops, roasts or belly portions that are most in demand.
Some offset of that disadvantage occurs in the corn shipment requiring much less stringent shipping methods, but the history of the packing industry in the past half century has been one of moving the plants closer to the producer. That logic applies to raising the animal close to the source of the feed.
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