June 16, 2011

 

 

Hog prices in China will hold at high levels in the coming months, but expected to drop moderately as the slack season for consumption is approaching and supply is rising, analysts said.

 

Hog prices have seen accelerated growth recently despite the usual slack season for meat consumption in the summer. Current pork prices are RMB26.67 (US$4.11)/kg, a jump of 75% over the same period of last year and higher than the peak achieved in 2008. Meanwhile, the national average price of hogs hit a record high of RMB17.68 (US$2.73)/kg last week, up 84.74% on-year.

 

Sharp rise of hog prices is ascribed to increasing feed costs and a drop in supply affected by adverse weather and epidemic disease since the end of last year, analysts said.

 

Feed costs usually account for about 70% of the total in hog farming. Currently, prices of corn, a major raw material for feed production, is RMB2.23 (US$0.34)/kg, up nearly 10% on-year and a two-year high. Besides this, rising prices of piglets and the mounting cost of labour, transportation, epidemic prevention, electricity, and water have all increased farming costs.

 

The latest data from the Ministry of Agriculture shows that the national herd of hogs numbered 45,280 in May, up 0.8% over the previous month and an increase of 4.4% over the same period of last year.

 

It is noticeable that although hog prices hit a record high to significantly improve profits in hog farming, the current average profit of RMB634 (US$98) in breeding one hog does not match the peak of RMB800 (US$123) in April 2008.

 

This reflects that there is a big gap between supply and demand, but feed costs also contributed a lot to the price rise, analysts said, adding that rising costs and a supply shortage were likely to support hog prices at above RMB17 (US$2.62)/kg.

 

However, as the weather becomes hotter, meat consumption is expected to fall, which may drag down hog prices.

 

To cushion the impact of the pork price rise on inflation, the Ministry of Agriculture has already specified support measures to stabilise hog production and these are expected to have a positive impact on the hog market in the following period.

 

Meanwhile, a sharp rise in profits from hog farming has played an important role in improving the performances of listed firms. Analysts say that as the climate for the livestock breeding sector is recovering, the feed sector is expected to see a rise in both prices and sales in the second half.

 

The improving climate of the hog market has also boosted enthusiasm for hog farming. Some listed companies, which are engaged in hog breeding, are planning to expand capacity while some other companies are moving into hog farming for the first time. For example, Shenzhen Jinxinnong Feed, a company specialising in fodder production, announced that it plans to extend its industrial chain to the high-end hog breeding sector.