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November 1, 2019

 

China's pig producers see bigger earnings from high pork prices due to ASF

 

 

China's major pig producers have witnessed their highest ever profits in the three months to September, as rising hog prices made up much for losses suffered from the African swine fever outbreak in the country, Reuters reported.

 

The huge profits underscore how ASF has presented a crucial opportunity for leading producers in the world's largest but highly fragmented hog sector, while killing millions of hogs and leaving many small farmers bankrupted.

 

Wens Foodstuff Group Co Ltd, Muyuan Foods Co Ltd, and New Hope Liuhe all saw third-quarter profits more than double from the previous year's level.

 

Muyuan's net profit of ¥1.54 billion yuan (US$218.88 million) was twice as high as its previous best quarter.

 

The sharp turnaround comes a year after ASF broke out in China and spread rapidly across the country. China's pig herd had shrunk by 41% year-on-year in September, pushing live hog prices to ¥30 (US$4.26) per kilogramme in some provinces.

 

For large producers, prices are high enough for much larger earnings that are possible even with some losses of sows killed by ASF.

 

"Upstream hog breeders suffered losses in the first quarter of 2019. However, prices started to rise due to tightened supply from the second quarter, which helped the breeders turn profitable," said Fitch Ratings in a note last month.

 

Hog margins averaged about ¥1,625 per pig by the end of the third quarter.

 

"While production costs are basically the same, pig prices keep soaring. The growing spread is all profit," said Mao Yifan, analyst with Industrial Securities.

 

The companies are also gaining market share after price volatility earlier in the year pushed many smaller farmers out.

 

Wens, which produced 22 million pigs in 2018 and had a market share of 3.2%, had increased its share to 3.8% by the end of September, said Becky Han, associate director of APAC Corporates at Fitch Ratings.

 

It is targeting a 10% share of the market, producing about 70 million pigs, by 2027.

 

With hog margins now at more than ¥3,000 (US$426) per pig in many southern provinces, profits will grow much more in the fourth quarter.

 

Zhongtai Securities analysts expect Wens to report full-year profits of ¥20.87 billion (US$2.96 billion), a fivefold increase on last year.

 

Muyuan profits will jump 10 times to ¥5.2 billion (US$738.4 million), said China Merchants Securities analysts, and hit ¥30 billion (US$4.3 billion) in 2020.

 

Even if the disease hits a small number of the companies' farms, margins are so high that profits at the other farms will more than cover the losses, Darin Friedrichs, senior analyst at INTL FCStone, said.

 

- Reuters

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