June 3, 2004

Chinese Hog Producers May Incur Losses in 2nd Half This Year

An eFeedLink Exclusive Report
 

In the last two quarters of 2003, China's grain prices went up sharply, which affected the confidence of Chinese farmers on the prospects of hog production.

A change in market situation occurred this spring; the increase in China's hog prices was greater than that of the rise in feed prices. According to some computation, Chinese hog farmers are able to make a net profit of at least RMB100-200 for each hog they sold. This has re-ignited hog farmers' enthusiasm for hog production. Their renewed interest in hog farming is a direct consequence of the rising prices of piglets.

In mid-February, prices of piglets in China rose to RMB7.64/kg and then climbed to RMB9.11/kg in mid-March. In mid-April, prices of piglets reached a new high of RMB9.26/kg. According to analysts, there is likelihood that profits might be slashed from hog production and farmers might even experience losses in the latter half of this year. 

Although the drop in supply of meat hogs in the Chinese market was an important contributing factor to the rise in live hog prices, the key factor for the rising prices during the early part of this year was the bird flu outbreak, which led to a sharp decline in the consumption of poultry products. This has in turn led to a higher demand for fresh pork.

With the negative effect of the bird flu outbreak gradually subsided and poultry production return to normal levels, coupled with the relatively low prices of aquaculture products, China's live hog prices are unlikely to uphold their high levels in the near future.

After months of analyzing the market, trade participants arrived at the conclusion that hog farmers would only make a profit if the ratio of hog price to corn price rose above the breakeven point of 5.5:1.

In mid-April, the average price of meat hog in Jiangsu province was RMB412.73 per 50 kilograms, while the market price of corn was RMB1.46/kg and the ratio of hog price to corn price was able to maintain at above 5.6:1.       

Due to a shortage in grain supply, market analysts forecast that China's corn prices could continue to rise in the latter half of the year. It requires a period of four months for a piglet to be ready for sale. It still remains to be seen if the ratio of hog price to corn price can be maintained above 5.5:1. Even if this could be achieved, hog farmers could still incur losses if they have paid for the piglets at high prices.

The consistently high prices of piglets have prompted a situation of unscrupulous merchants attempting to sell low quality piglets to hog farmers, who are anxious to replenish their hog inventory. The farmers who have been cheated would eventually incur a loss due to the low quality of the piglets they bought.

Industry experts warn that hog farmers and producers should adopt a rational approach to the business of hog production business and not just let rising prices dictate their actions. Farmers' scale of hog production should be kept within the boundaries of their capital and budget. They should also be discerning when purchasing piglets to avoid paying high prices for low quality piglets.