May 29, 2017

 

China pig farmers risk losses in 2018 as production inches to glut

 

Analysts expect China's pig farmers to suffer financial losses by 2018 in light of the country's herds about to reach full capacity, Reuters reported.

 

The development is expected to mar efforts for increased pork production.

 

Following losses, Chinese pig farmers were forced to cull their herds, inducing a spike in prices to CNY22/kg (US$3.19) in 2016. This had also compelled Cofco Meat, New Hope Liuhe and Guangdong Wen's Foodstudffs to escalate expansion of production in order to capture profits of more than US$100/pig.    

 

However, the replenishing of sows caused plummeting prices for several months, according to Feng Yonghui, chief analyst at consultancy Soozhu.com.

 

"Sows are not yet in overcapacity, but it will be very soon, within two or three months. Which means, by next year, this profit-making cycle will end and turn to losses," he told an industry seminar.

 

Prices have already been on the decline from last year's peak, falling to about CNY14.5/kg (US$2.11), and will continue to plunge for now, Feng added.

 

"Next year, they'll fall to more than CNY5/half kg (US$0.73)," he told Reuters on the sidelines of the seminar.

 

Sows removed from farms -- that have been shut in southern China to tackle water pollution -- are simply being transferred elsewhere, said Feng. This shift does not help to abate a burgeoning hog herd.

 

Meanwhile, large farming groups have built new capacity further north, with more upcoming new projects. Top producer Wen's is targeting production of 27.5 million hogs by 2019, up from 17 million last year.

 

Productivity in China is also increasing, said Pan Chenjun, executive director of food and agriculture research at Rabobank Hong Kong, with the average piglets per sow now around 17.

 

"I agree with Feng that, by middle of next year, some farmers will be losing money," she told Reuters. "Although a lot of farms have closed since 2016, it hasn't led to a real drop in production capacity."

 

She estimated pork production will increase by 2% this year, pressuring prices.

 

Soozhu.com's Feng added that the loss-making cycle could last as long as six years, around double the typical period for a down cycle, with major pork firms unwilling to give up some market share.

 

"Smallholders also made a lot of money last year so they won't want to slaughter sows either," he added.

 

China's sow inventory fell from about 50 million head in 2014 to 37.5 million currently, based on official data.

 

- Reuters