March 20, 2024

How pig prices connect to movements in China's stock market

 

Since May 2023, China's major stock market indexes have plummeted relentlessly, with the Shanghai Composite Index falling from 3418.95 on May 9 last year to 2867.71 as of January 11 this year.

 

The pork sector index earlier saw a rebound in the index last March, peaking at 2668.75 on April 4, 2023 - then falling, followed by a rebounding in October. The rally lost momentum at 2312.25 on December 7 and slid to around 2,127 as of mid-January 2024.

 

The movement of pig prices since October 2023 does not, however, appear to reflect sentiments behind rallying pork sector stocks. Prices of domestic pigs were in a downward trend since August 2023 amid plentiful supply and weak demand. Pig prices rebounded slightly between late October and mid-November, but this was short-lived as disease outbreaks hastened the release of pigs in central China.

 

From the perspective of farming profits, most pig producers were incurring losses.

 

So, what were the factors that drove up the prices of listed pig companies in October?

 

First, the rise in pork stock prices started in late October, which was likely stimulated by a momentary hike in pig prices from the end of October to November.

 

Secondly, while the expedited releases of pigs in regions affected by outbreaks limited the price rebound between late October and mid-November 2023, speculators expected pig prices to strengthen later due to increased pre-festive demand for pork in the coming period. Moreover, they anticipated that the African swine fever would result in shortages of pigs, as it did in 2021.

 

Also, since October 2023, the prices of soybean meal and corn have dropped by 13% and 10%, respectively, potentially reducing production costs and lifting profits.

 

However, record release volumes did not boost revenue for many major pig producers, due to weak prices last year.

 

Furthermore, excessive pig production has to led to weak prices, making the trimming of production capacities a logical move for pig producers. Small- and medium-scale farms are more likely to cut sow numbers. In fact, sow inventories dropped by about 5% in 2023. This will translate to lower pig release volumes in Q3 and Q4, 2024, providing a means to rebound prices significantly; it also explains why stocks in the pork sector recently surged despite the weak performance of the pig market.

 

- Shi Tao, eFeedLink