August 26, 2009

China's hog farmers have every reason to feel gloomy with the swine flu epidemic, now known as AH1N1 virus outbreak, triggering a global consumer avoidance of pork, just as feed prices rose and the Chinese economy slowed.

 

However, this summer farmers appeared to have refrained from a widespread cull as the government's pork stockpiling program and rising hope about the outlook revived prices from a two-year low in May, enabling farmers to earn profits once again.

 

The absence of hog culling has important implications for the demand for imported soy, half of which are crushed into soymeal used to feed livestock in a country that consumes half of the world's pork supplies.

 

Analysts said the demand for soymeal and corn that goes into hog, chicken and fish food will fail to rise this year after increasing at an annual average rate of seven percent this decade. However, most of that slowdown was concentrated in the first half of the year, with an impending rapid rebound that will support imports.

 

The government stockpiling scheme and hopes for better times ahead has encouraged hog farmers to maintain their inventories.

 

According to Jean-Yves Chow, a Hong Kong-based industry analyst with Rabobank, replenishment rate in the hog and poultry sector over the past few months has been below expectations, resulting in a drop in feed consumption. Nonetheless, he said the second half will see much improvement as meat consumption should increase and it will be more attractive for farmers to stock up their inventories.

 

Meanwhile, the China National Grain and Oils Information Centre expect the consumption of soymeal to rise 3.15 percent to 29.5 million tonnes this year, which is lower than the 11 percent achieved last year due to the then strong economic growth.

 

With the Chinese government purchasing 120,000 tonnes of pork in June, retail pork prices have since risen 11 percent, which encouraged hog farmers to replenish their inventories, particularly with the National day and Mid-Autumn festival holidays arriving in October. Thus, feed demand is also expected to rise with the increase in livestock.

 

The increasing wealth and urbanisation of the Chinese fuels the demand for more higher-protein foods like meat. Therefore, large volumes of high-protein grains such as soy are needed. Currently, China imports 70 percent of its total soy demand.

 

According to the National Development and Reform Commission (NDRC), China needs about 410 million live hogs, including 41 million sows, for the market to be in equilibrium. Official data showed that China had 447.2 million live hogs and 48.3 million sows at the end of June. In July, the country had 450.06 million live hogs and 48.06 million sows.

 

Meanwhile, the Commerce Ministry data showed that 17.2 million hogs were culled in July, returning to May's level after reaching 17.4 million in June.

 

As the US soy crop faces threat from an early frost in September while China's main soy production regions are experiencing a severe drought, soy prices could once again reach the nine-month high they hit in June.

 

In the first seven months of the year, China's soy imports rose 28 percent to 26.5 million tonnes. As the NDRC estimated a full-year import of 40 million tonnes, a sharp decline was suggested in the second half of the year but it now looks less severe than expected.