African Swine Fever takes toll on Chinese pork firms

By Mark Godfrey

- Last updated on GMT

ASF hits Chinese pork profits

Related tags: Pork

Results coming out from China’s leading pork firms show a collapse in profits due to the drag on prices from African Swine Fever.

The drop in pig prices means leading pig breeding firm Chuying Agro-pastoral Group is projecting a CNY1 – CNY1.6 billion loss for the first three months of 2019, a collapse on the CNY357 million in profits in the first quarter of 2018.

Likewise, leading pig and feed producer Tian Bang (also known as Tech Bank Food Co) has said its profits were down 1,032% after a 10% year-on-year fall in pig prices in its key base of Guangxi province. The company sold 762,600 pigs in the first quarter at an average CNY11.17/kg.

That price had stabilised in March to CNY13.34/kg, but that figure remains way off the CNY22/kg paid for pigs in 2015 at the high end of the last surge in China’s highly cyclical pig prices.

The huge losses are worrying for Chuying, which has been seeking to expand into downstream activities to improve margins. The company has partnered with leading petroleum distributor Sinopec to distribute its products, while also expanding branches of the ‘Sha Xian’ chain of fast food restaurants across southern China and has invested in a plant and farm in Tibet to produce smoked legs of pork for a high-value artisanal food market.

The fallout from African Swine Fever will have a transformative impact on China’s pig sector, according to industry analysts. Big companies’ investment channels, costs and output are all more efficient compared to smaller firms, which are likely to be forced out of business, according to a note published this week by Ouyang Yu Jian at Chuan Cai Securities. “Large-scale firms account for only 10% of output in China’s pig sector in numbers, compared to 90% in the EU and USA,”​ according to the note.

That will change due to the recent epidemic, according to other industry voices. The top 22 companies will breed 15% of China’s total pig numbers in 2020, predicted Xie Zhiyou, a meat industry analyst at Galaxy Securities.

The long-term outlook for China’s pig companies might be more promising than current losses have suggested: the share prices of leading firms suggested investors had confidence in the companies. Muyuan’s share price rose 103% between 11 May 2018 and 5 March this year noted Xie.

Meanwhile, China’s leading poultry producing firms Sheng Nong and Yi Sheng have announced a huge surge in first-quarter profits due to strong chicken prices. Sheng Nong – which supplies McDonald’s among other major clients – said its net profit hit CNY1.5bn in the first quarter, up 377% year-on-year.

Related topics: China, Financial, Pork

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