April 26, 2021

 

Swine producers in China set to report lower Q1 earnings

 

Major swine producers China are expected to report lower first quarter profits after swine prices plunged, the reemergence of livestock disease, more expensive feed, and poor performing sows battered earnings, Reuters reported.

 

Analysts said earnings declines started in fourth quarter of last year with margins still under pressure, as these major swine companies tackle issues and costs related to recovering from African swine fever (ASF), which reemerged in the country this winter.

 

Swine prices dropped 40% in the first quarter because farmers rushed to liquidate herds as ASF reemerged and lower demand for pork during the Lunar New Year.

 

Tech-bank Food Co Ltd said margins for live hog sales dropped as farmers slaughtered sows and lightweight younger swine. The company projected a profit decline of 50% to 60% last week.

 

Two other major swine producers, Jiangxi Zhengbang Technology Co Ltd and New Hope Liuhe, also posed profit warnings last week. Wens Foodstuff Group Co Ltd reported a 71% drop in first quarter earnings despite its poultry business booming.

 

New Hope Liuhe, which last year projected a 93% profit drop for the quarter from RMB 1.63 billion (~US$251 million), attributed losses to falling swine prices, increased feed costs and higher costs caused by ASF.

 

None of the major swine producers in China have reported ASF outbreaks. Only a few cases of ASF have been officially confirmed.

 

New Hope had told investors that ASF has affected China's northern region where it owned many farms. The company said it lowered is sow herd by 7.5% or 90,000 swine, and said it is taking precautions so its southern region farms are not similarly affected.

 

Jiangxi Zhengbang Technology said its slaughter of 350,000 "low-efficiency" sows during the first quarter had a big impact on profits, losing about RMB 4,000 per sow. The company said its quarterly profit would drop as much as 77% from RMB 905.6 million (~US$) in the same period last year. Zhengbang had already slaughtered 450,000 sows in the prior quarter.

 

Companies have been using female market swine to breed because of the low supply of breeding sows caused by ASF, but these produce smaller litters, increasing costs.

 

Zhengbang said after completely eliminating its low-efficiency sows, its its breeding costs should fall rapidly.

 

The only company to project higher earnings was Muyuan Foods Co Ltd, the top swine producer in China. The company's first quarter profit is projected to rise 60% compared to a year earlier.

 

Xiao Lin, an analyst at Shenzhen-based Win & Fun Investment, said Muyuan Foods produces its own breeders and piglets, and has better controlled disease outbreaks.

 

Pan Chenjun, senior analyst at Rabobank, said disease remains the key issue instead of profitability. She said everyone knows prices will rebound, but it remains to be seen if producer will have swine to supply for the market.

 

- Reuters