March 16, 2012

China's 2012 hog prices likely to decline

Hog prices in China may drop as much as 20% this year, dragging pork values down, Chinese meat processor Zhongpin said.

Zhongpin, which has a capacity to handle nearly 730,000 tonnes of pork a year, warned that its profits would fall below market hopes and send it shares tumbling.

It added that hog prices would average 15% -20% cheaper this year than in 2011 as swelling grain bills encourage producers to sell.

Currently, there is an "abundant supply" of hogs, the New York-listed group said, noting the "increasing cost to raise" animals. The falling hog market will depress pork prices, given that values of the meat "tend to follow hog prices", even though consumption looks set to hold firm.

"China's economy continues to expand and pork continues to be China's preferred protein," the company said. "The outlook for China's pork processing industry remains quite positive."

China's pork sector is important to economists as well as agriculture investors. As pork prices account for one-third of the country's food price index, its impact on consumer inflation has a large bearing on the country's monetary policy.

China's swine sector could impact world pork markets, as seen last year when imports soared one-third to meet production shortfall.

In addition, the swine sector also affects trading of crops needed to keep its huge herd fed. China's soy imports fell by 3.9% to 52.6 million tonnes in 2011, the first drop in a calendar year in seven years. However, it is widely expected to resume strong growth this year.

US pork imports was strong at the start of the year, hitting 30,061 tonnes in January, down 360 tonnes from December, but up 172% on-year, according to the US Meat Export Federation.