August 10, 2018
Weak Chinese pig prices seen to drag down trade
Chinese live pig prices are still around 10% lower than year earlier levels as of late July despite some upward momentum since May, according to AHDB Pork.
Live hog prices for the week ended July 25 stood at CNY12.52 per kilogramme (US$1.83/kg), which reports say is just around the break-even point. There are, though, possibilities of incurring large losses, the pork division of the UK levy body Agriculture & Horticulture Development Board said.
"The low prices indicate that supply continues to exceed demand. This reflects increasing domestic pork production, as large industrial pig units continue to expand faster than smaller farms are exiting the industry", AHDB Pork said.
With increasing domestic production and domestic prices still weak, China's pork imports have been falling. Thus, in the first quarter, pork and pig offal shipments directly to China fell 10% year-on-year.
While China has not yet released its second-quarter trade statistics, pig meat and offal shipments to neighbouring Hong Kong continued to fall sharply in the second quarter (-20%). "With considerable trade occurring between the two countries, this likely represents continuing slow import demand from the mainland", AHDB Pork said.
Nevertheless, several key suppliers have recorded year-on-year increases in shipments of pig meat and offal to China in the second quarter. AHDB Pork said this may be a result of stockpiling in light of the ongoing trade war with the US. A second 25% tariff on US pig meat imports was implemented in early July.
Overall, trade is unlikely to pick up much in the coming months considering prices have remained weak. The Chinese renminbi has also weakened in the second quarter, further disadvantaging imported product over domestic production. Higher tariffs on US soybean imports into China could also inflate the cost of Chinese pig production, increasing the pace at which less efficient producers are exiting the industry.
AHDB Pork cited another factor that could potentially lead to supply volatility: disease, with African swine fever detected for the first time in China last week. "With poor profitability at present, producers may be tempted to lower biosecurity measures to reduce production costs", AHDB Pork said in a warning.