April 4, 2013
A US Grains Council team spent much of this week speaking with village level swine producers. Many told the Council it currently costs them CNY12-13 (US$1.93-2.10) per kilogramme (around US$0.91 per pound) to produce a hog to market weight, while the Chinese packer will give them around CNY12-15 (US$1.93-2.42) per kilogramme (about US$0.99 per pound) for a live hog. According to the Agricultural Marketing Service, on March 25, the weighted average live hog price for Iowa/Minnesota was quoted at US$0.54 per pound.
This is a much different market, compared to the summer of 2011, when live hog prices peaked at around CNY20 (US$3.22) per kilogramme (US$1.47/pound). One farrow to finish operator in Yunnan province, who has capacity for about 100 sows, told the Council that in 2011 he made CNY300,000 (US$48,000) to distribute amongst his family and one employee. In 2012 he made CNY100,000 (US$16,000). This year, he is projecting a loss of about CNY50,000 (US$8,000). As a result, many producers are drawing down inventories and culling sows to reduce cost.
"China will continue to have large swings in the hog price cycle because, despite rapid modernisation of the industry, a majority of China's pork still comes from smaller-sized farrow-to-finish operations which tend to adjust inventories more quickly as prices change," said Bryan Lohmar, USGC director in China.
Kevin Roepke, manager of global trade for the Council, accompanied the team and agreed with Lohmar. "Although Chinese swine producers have seen better days, this certainly is not the time to get bearish on Chinese agriculture-in fact, just the opposite. Many producers are positioning themselves to rapidly build their herds back up once grain prices moderate and hog margins recover. This industry is a sleeping giant."
The rapidly evolving Chinese swine industry is a case study in change with many parallels to the general pattern of rising incomes and new development associated with China. All throughout the rural (and semi-rural) areas, hog farms dot the landscape. Many farmers started out with 2-3 sows in their backyard.
