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China’s new pig farmers aim to ride out boom-bust cycle

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November 2, 2021

By Dominique Patton

CHONGQING, China (Reuters) – China’s huge hog sector is struggling with excess production after millions of small, often first-time, pig farmers entered the industry to capitalise on record profits during a swine-fever related shortage.

Now, even as prices hover below the cost of production and the government urges them to cull their herds, many of the newcomers are reluctant to give up, dimming hopes for the market returning to balance.

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“We’ve been losing 400,000 yuan ($62,500) a month since July. But we made a profit last year so we’re going to hold on,” said Wu Zhanhang, a farmer based in central Henan, China’s top pig-producing province.

Wu, like many others, entered pig farming for the first time in 2019, after China’s top leadership called for an urgent recovery following a nationwide outbreak of the deadly African swine fever virus that halved the country’s 447 million-strong herd.

Profits initially boomed in line with higher prices for pork, the country’s favourite meat. But surging output and COVID-linked demand interruptions have driven down prices by 70% this year, causing heavy producer losses over the past three months.

Wu, who has a trading business selling veterinary products, spent 6 million yuan ($935,000) on a new farm where he fattens up about 5,000 pigs at a time.

Last year he was making as much as 3,000 yuan ($470) a hog, three times the best money seen in prior years. This year, after prices plunged, he has been selling fully grown fattened pigs for less than he bought them as weaned piglets.

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(For graphic on Profits for farmers in China’s top pig-producing province: https://graphics.reuters.com/CHINA-SWINEFEVER/HOGS/movanjeblpa/chart.png)

SUPER-CYCLE

The dramatic turn in fortunes caught out even the biggest hog companies and has caused havoc across the sector and its suppliers.

Listed hog producers reported billions of yuan in losses in the third quarter.

Many breeders are struggling to pay their suppliers, said a feed company manager, and are are even cutting out regular feed ingredients.

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All have slowed, or even stopped planned expansions. Tech-bank Food Co Ltd is leasing out some of its newly built farms and halted construction of others, while delaying payment of management salaries, it told investors.

Weak demand is also a factor, said Dan Wang, chief economist at Hang Seng Bank in Shanghai. The massive build-out of new breeding farms has come at a time when consumer demand for pork still lags ‘normal’ levels because of repeated flare-ups of COVID-19 that curb eating out.

However, industry efforts to turn things around are being undermined by an army of small producers still gambling on a return of higher prices, say market watchers.

More than 2 million small farmers entered the sector last year, according to official data, joining an estimated 20 million small-scale pig producers, while some 16,000 new large-scale farms also began operating.

“The current market is caused by millions of farmers’ speculative behaviour towards the African swine fever-related price expectation,” said Pan Chenjun, senior analyst at Rabobank.

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SOW STOCKS

With a bigger breeding herd now than before African swine fever struck, government officials last month issued a rare instruction to farmers to eliminate their less efficient sows.

Large players have been getting rid of sows for several months and some others are following suit.

“We have close to 1,000 sows, we’re going to cull half. If you keep them, you lose more,” said the manager of a small breeding farm in northern Hebei province, who declined to be identified.

Some farmers, however, are still hoping for a recovery. Wu, the Henan farmer, says he has switched to cheaper feed rations and can ride out the heavy losses until the New Year.

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A modest price rally in October also revived enthusiasm among farmers for breeding, said analysts, and will likely serve to extend the period of low prices.

Some market watchers say it could take another disease outbreak to clean up the market, with African swine fever still infecting farms and other common diseases often worse during the winter.

“At the end of the year or early next year there’ll definitely be a large disease outbreak,” Wang Chuduan, professor at China Agricultural University, told an industry meeting in Chongqing. “It will speed up the elimination of pigs and then a new market will start next year.”

($1 = 6.4021 Chinese yuan renminbi)

(Reporting by Dominique Patton; editing by Richard Pullin)

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Delta flight from South Africa to Atlanta diverted to Boston for “technical specifications”

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November 28, 2021

(Reuters) -Delta Air Lines said a flight from South Africa to the United States was temporarily diverted from Atlanta to Boston on Sunday for technical reasons.

Flight 201, an Airbus A350, from Johannesburg was initially set to arrive at Hartsfield–Jackson Atlanta International Airport on Sunday but was instead routed to Boston’s Logan International Airport, Delta said.

The diversion “has to do with technical specifications of our A350 aircraft and the payload of this particular flight,” the company said in an email.

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“This can happen on ultra-long-haul flights when optimal operating conditions can’t be met,” it said.

The Federal Aviation Administration told Reuters it would investigate the situation.

The flight, which was initially scheduled to land in Atlanta at 8:15 EST (1215 GMT), was rescheduled to land at in Boston at 9:27 a.m. before departing for Atlanta at 10:40 a.m., it said.

The company did not cite the newly discovered Omicron variant of the coronavirus, which has been detected in South Africa, as a reason for the temporary diversion.

More than a dozen passengers on a flight from Johannesburg to Schiphol that landed Friday tested positive https://www.reuters.com/world/europe/dutch-set-announce-findings-omicron-cases-among-safrica-travellers-2021-11-28 for the new variant, Dutch authorities said on Sunday.

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(Reporting by Peter Szekely in New York and David Shepardson in Washington; Editing by Heather Timmons and Mark Porter)

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Chip shortage to cost Daimler Truck billions in revenues – Automobilwoche

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November 28, 2021

BERLIN (Reuters) – Daimler Truck Chief Martin Daum expects the global chip shortage to hit revenues by several billion euros this year and sees the problem continuing into next year, Automobilwoche reported on Sunday.

The world’s largest commercial vehicle maker, to be spun off from Daimler on Dec. 10, has outlined cost-cutting measure aimed at boosting profit margins as it struggles with chip shortages hurting the entire sector.

Daum said there would be a significant financial hit.

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“It is a huge sum,” Daum told Automobilwoche, saying the company would sell a “mid five-digit number” fewer vehicles than it could have.

With an average price of 100,000 euros ($113,170) per vehicle, this means several billion euros in lost revenues, reported Automobilwoche.

“We also have many vehicles sitting in the factory where just one part is missing. These deliveries are a priority because they are already sold,” said Daum.

He also told Automobilwoche that supply problems are likely to continue in 2022.

($1 = 0.8836 euros)

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(Reporting by Madeline Chambers, Editing by Louise Heavens)

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It’s raining dividends, hallelujah! Canadian banks set to post strong results

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November 28, 2021

By Nichola Saminather

TORONTO (Reuters) – Canada’s top six banks are expected to resume raising dividends and share buybacks after nearly a two-year hiatus and report strong quarterly earnings this week, which could boost the sector’s appeal to yield-hungry investors even as stocks trade close to all-time highs.

The market will also be looking for clues on the banks’ expected expense growth into next year as wage pressures intensify, and long-awaited improvements in net interest margins as interest rates rise.

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The “big six” Canadian banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia (Scotiabank), Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada – on average have a dividend yield of 3.3%, according to Reuters calculations.

That compares with the global sector median of 2.5%, according to Refinitiv data.

The dividend increases, which would be the first since the country’s financial regulator imposed a moratorium in March 2020 that was lifted earlier this month, could range from 10% for Scotiabank at the lower end to 34% at National Bank, Gabriel Dechaine, an analyst at National Bank Financial, wrote in a Nov. 22 note describing the coming hikes as a “dividend growth tsunami.”

The banks are also expected to announce repurchases of about 2% of their outstanding shares on average.

“It’s going to be a significant (dividend) increase, and will help them reduce excess capital on their balance sheets,” said Steve Belisle, portfolio manager at Manulife Investment Management. “That flows through to better ROE (return on equity).”

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Even without the higher dividends or buybacks, Canadian bank shares have rallied to record highs, driven in part by better-than-expected earnings due to the release of reserves set aside to cover loan losses that haven’t materialized.

LOAN GROWTH ACCELERATION

The Canadian banks will be reporting their fourth-quarter earnings, with Scotiabank kicking off the results on Tuesday.

Analysts expect adjusted earnings for the top six lenders to jump about 37% from the year-earlier period, helped by a pick-up in business and credit card lending, strong mortgage growth and continued reserve releases.

An acceleration in loan growth is expected, as savings built up during the COVID-19 pandemic have lifted consumers’ and businesses’ purchasing power even at higher prices, with the broader economic recovery adding fuel to the fire, said Philip Petursson, chief investment strategist at IG Wealth Management.

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The one blot on the horizon may come in the form of non-interest expenses. They could be 1% higher than in the third quarter, with much of the anticipated rise driven by variable compensation, and up 4% in fiscal 2022 on rising labor costs and continued investments in technology, CIBC Capital Markets analysts wrote in a note.

Earnings from capital markets earnings could also decline, although higher-than-expected trading revenues could help offset lower investment banking fees, some analysts said.

Profits are expected to be 6.6% lower than in the third quarter, largely due to releases of reserves, which are difficult to estimate and have driven better-than-expected results in past periods, and could again lead to positive surprises, analysts said.

The banks’ improving revenue growth, strong capital positions and expectations for returns on equity to remain in the mid-teens for longer than expected are positives, National Bank’s Dechaine said.

Wealth and asset management units are also likely to have seen further growth, as consumers continued to deploy cash piles they’ve amassed during the pandemic, Petursson said.

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“It’s really hard to see where the warts would be on the banks’ earnings,” he added.

(Reporting by Nichola Saminather; Editing by Denny Thomas and Paul Simao)

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