April 28, 2012

 

China to face tight pork stocks on disease, high costs

 

 

In the second half of the year, China may face tighter pork stocks as a disease among piglets cuts the headcount of animals for slaughter, and higher feed grain prices push small local farmers to lessen output.

 

A squeeze in China's pork supply during the high-consumption winter months and near-record feed grain prices could push up prices, prompting authorities to import more meat and supporting the price of US hog futures.

 

Although the porcine epidemic diarrhoea among piglets in China has not reached alarming proportions, analysts say it is starting to raise concerns over supplies.

 

"In the second quarter food prices will remain low but in the third and fourth quarter we will see food inflation coming back as pork prices will gradually move higher," said Jean-Yves Chow, a senior feed industry analyst at Rabobank in Hong Kong.

 

"There is a disease in piglets right now, so in the next four months pork prices will go up as there will be less pigs available for slaughter."

 

China's hog industry, responsible for annually producing 50 million tonnes or half of the world's pork output, suffered a deadly outbreak of blue ear disease in 2007 and 2008, which reduced the country's supplies of staple meat and lifted prices.

 

"We need to pay more attention to the disease and if it spreads as it can influence pork price at the end of this year and early next year," said one analyst with the official think-tank China National Grain and Oils Information Center.

 

As a result, China will increase state purchases of frozen pork to lift prices, amid mounting concerns that farmers' profit margins are being squeezed as the prices of live hogs fall.

 

Analysts say wild swings in China's pork prices could force small farmers out of business, having an impact on supplies as they still account for around 30% of the supply.

 

"I think the small farmer will be hit the most as they have a weaker management of the disease," said Rabobank's Chow.

 

China's annual inflation rate jumped more than expected in March to 3.6%, driven largely by higher food prices. The price of pork, a staple in the Chinese diet, surged 11.3% from a year ago, although it fell 4.8% from February.

 

Corn and soymeal, mainly used to fatten pigs, are forecast to become more expensive until new crops in the US, the world's top exporter, and China replenish supplies by September.

 

"I see upward pressure building on pork prices in the second half of the year," said Nicholas Zhu, a commodity analyst at ANZ in Shanghai. "There is more upside risk as we have a tight supply situation, if we have adverse weather or poor yields during the season, prices can go only in one direction."

 

China's pork imports from the US climbed more than three-fold in 2011 and the nation could be in the market for more meat later this year, even though lower prices in this quarter mean a slow down in shipments.