May 8, 2014
The National Development and Reform Commission (NDRC), China's top economic planning agency, said the reserve purchases are aimed at pulling the breaks on excessive pork price declines.
In part because pork is perishable, China maintains a frozen-pork reserve that is less than 1% of the nation's total annual consumption of about 53 million tonnes - the largest in the world. However, a reserve of hardly 1% of China's demand will not absorb enough supply to force price changes, analysts say. The pork bank is therefore often used more as a way to encourage markets to follow the state's cues than as an outright pricing tool.
Over the past years, Beijing has often intervened in the pork market, either to prevent drastic increases in the cost of a staple food or to stop weak prices from seriously harming rural livelihoods, which could stoke unrest.
Fresh-pork prices are around RMB17.94 (US$2.88) a kilogramme, the lowest point since September 2010 and down 19% from September 2013, according to data from the ministry of commerce. Analysts say a recent wave of sow liquidation-the industry term for slaughter-contributed to oversupply in the market, which is often subject to cyclical price swings.
The NDRC said prices began to inch up last month, ending 19 weeks of decline. At the end of April, prices were 0.85% higher than a week earlier.
The commission does not usually disclose how much pork it buys or the size of the pork reserve. Analysts estimate the first round of state purchases this year amounted to around 65,000 tonnes, about a quarter of a total stockpile believed to be around 300,000 tonnes.
China's goal is to keep pork prices high enough for hog farmers to at least break even. To do that, hog prices need to be six times the price of grain. The ratio is currently at a loss-making 4.64 to 1, which prompted Wednesday's intervention, the NDRC said.
In the first half of last year, the government intervened in the market by buying pork for the stockpile at least twice. That helped prices to rise 14% between May and September.
Hog prices in Guangdong province, a major southern pork producing region, rose by RMB1 a kilogramme this week from RMB12 a week earlier, a likely sign that the March intervention is having a limited effect, said Tommy Xiao, an analyst with agricultural consultancy Shanghai JC Intelligence Co.
Rabobank predicted that pork prices in China may begin to rise by larger margins only toward the end of summer this year, as seasonal factors begin to boost consumption. Chinese pork consumption will probably remain steady this year, which would help keep the market relatively stable, the bank said.
