February 23, 2022

 

China's pork producers aim for higher capacities - but pay a higher price

 

Pig prices in China plummeted from ¥36.01/kg (US$5.68) in early 2021 to ¥10.35/kg (US$1.63) in early October.

 

This was followed by a rebound to ¥16.64/kg (US$2.62) within a month, an increase of over 60%. Over the past months, prices fluctuated in the ¥15-18/kg range (US$2.36-2.84). To understand these developments, we should look at some inevitable market trends.

 

One trend is the accelerated expansion of large Chinese companies. When hog prices soared in 2020 and early 2021, these companies made huge investments to expand production capacity.

 

For companies with more than 100,000 sows, their production capacity has grown greatly. Muyuan's production capacity increased to more than 70 million heads. Zhengbang declared that it could release 12 million heads of fattening pigs per year, with facilities for another 11 million heads under construction.

 

New Hope's sow production capacity has reached 1.5 million while Wen's Group has a preliminary plan to boost its release volume in 2022 to 18-20 million heads, an increase of 5-7 million compared to 2021. Although the production capacity is not equivalent to the actual slaughter volume, the expansion of these market leaders portends a high output in 2022.

 

Hence, we project sow inventories to exceed 40 million entering 2022. This will inevitably translate to a high number of commercial pigs available for slaughter, bringing the pig market back to pre-African swine fever levels.

 

However, it is difficult to cut pig farming costs. Last year, higher corn prices lifted pig feed costs significantly.

 

eFeedLink projects 2022’s feed cost to stay around ¥7/kg (US$1.10) per commercial pig, which is actually lower than ¥7.22/kg (US$1.14) in 2021. The total cost of hog farming is unlikely to be low due to high costs in energy, transportation and manpower. Overall, the cost of a released hog this year is projected at ¥17.00-17.50/kg (US$2.68-2.76).

 

Judging from the aforementioned trends, hog producers will face a challenging 2022.

 

Most farmers, including market leaders, are still incurring losses with every release of finishing pig. Only a few players with good cost control, like Muyuan, are seeing good returns with increased production capacity.

 

Additionally, many pig producers are heavily indebted due to capacity expansion. 2022 will be a test for many farms — even those of large enterprises — and may mark a turning point for the Chinese swine industry.

 

- DAVID LIN