June 8, 2004

Live Hog Prices Driving Demand for Lysine in China
 

An eFeedLink Exclusive Report
 

In the past few weeks, China's live hog prices have maintained a steady upward trend.  According to official statistics, prices of live hogs in China have reached the RMB5.15/half kg level, up by 51% from RMB3.40/half kg versus the same period last year.  Average price of live hog from January to May 2004 is RMB4.85/half kg, up by a significant 43% compared to the same period last year.

There are two contributory factors behind the significant rise in China's prices of live hog. Firstly, there was a shortage in the supply of live hog. In recent years, although pig farms have increased, backyard hog farming by small Chinese farmers has been on the decline. The overall hog inventory has fallen.

Secondly, the rise in prices of animal feed has raised the production costs for hog production. As such, prices of live hogs have to be increased in order to offset the rise in production costs.

Market participants should recognize that further strengthening of live hog prices would have a positive impact on the demand for lysine in the medium term. A Chinese farmer reportedly could reap RMB150-200 in profits from the sales of a pig.  This relatively high profit margin will raise farmers' interest in rearing more pigs and the demand for pig feed would increase, driving the higher requirement for lysine in turn.

However, analysts also cautioned that the current low hog inventory may dampen demand for pig feed, and thus lysine, in the short term. During April and May this year, the output of hog feed has fallen by varying amount in different regions of China.