It is proving a gloomy start to the year for China’s pig producers, with low prices for hogs continuing to dog the sector. The latest data from the Department of Agriculture in Beijing showed that, as of 12 February, the national average price of RMB13.23/kg was down 0.8% on the previous week, but down 19.4% year on year. At RMB23.19/kg pork prices were down 13.1% year on year and 0.8% on the previous week.
Hog prices are some way off the RMB15.25/kg averaged last October and even further off the RMB18.93/kg average price recorded in October 2011, when prices hit a high not seen since. So there is some way for pork prices to grow to the peaks seen in 2011, when imports soared. Retail pork prices last October averaged RMB23.50/kg, up 4.9% year on year, but well off the RMB28.78 average price in October 2011.
The spread between live pig and pork wholesale prices now stands at RMB9.98/kg, according to pork industry consultancy Soozhu. Yet perhaps more worrying is the long-term outlook for pork demand. China’s pork players will be alarmed by a report on Chinese food consumption habits published this month by the office of China’s cabinet or State Council.
Titled the ‘China Food & Nutrition Programme 2014-2020’, the report suggests the average Chinese citizen in 2020 will eat a ‘daily ration’ of 135kg by 2020, with meat making up 29kg of that figure. Pork is set to make up 63% of the meat figure, an average of 18.27kg per person. That means China’s overall consumption – given a population of 1.35 billion in 2020 – will total 24.6 million tons in 2020. That would represent a sharp reduction from the 54.93 million tons consumed in 2013.
There is a looming over-capacity problem, according to a commentary on the State Council report published by Soozhu. “Over-supply can’t be digested by the market… there is a serious friction between supply and demand.” Cheaper prices for hogs, however, have been good for the earnings of processors, allowing for cheaper sourcing of pigs. Market leader Shuanghui last week cut the prices paid for pigs by RMB0.30/kg, offering RMB11.40/kg to RMB11.80/kg for pigs at its Luohe factory in Henan province. Shandong Jinyi Xincheng, meanwhile, dropped its standard purchase prices by RMB1/kg and is offering RMB10/kg to RMB12/kg for slaughter pigs, depending on grades.
Pig processors may have the upper hand for some time, with several industry insiders predicting in the local press this month that weak pig prices will persist through the first half of 2014. Nonetheless, data from the agricultural ministry also shows that low prices are starting to cut into herd numbers. The department’s data from 4,000 monitoring stations nationwide showed herd numbers down 4.2% month on month and 2.2% year on year in January.
The sow population, meanwhile, shrank 0.6% month on month and 2.6% year on year. Rises in pork prices have been controlled by the government through a sow breeding subsidy, which has ensured numbers of piglets and breeding sows remain high, alleviating government worries about food price inflation – though hardly helping pig prices for farmers. Many of China’s larger pork processors, including Shuanghui, Yurun and Delisi, have used government subsidies in recent years to expand their slaughtering and processing capacity, with idle capacity a constant feature of the pig meat processing sector in China.