June 20, 2011

 

 

The continuous rise in pork prices in China has resulted from reduced hog breeding and supply shortages due to low prices at this time last year, as well as rising labour and feed costs, according to the Ministry of Commerce (MOC).

 

"Since early last year, when we suffered a shortage of factory workers, a lot of small hog raisers have retreated to work in other sectors. A period of short supply will naturally emerge as the lack of capacity can't be [compensated for] in a short period," analysts said, adding that production from bigger raisers hasn't been able to fill the gap.

 

Since the fourth quarter of last year, pork prices have broken the normal seasonal pattern, experts said. "Prices usually rise at the end of a year and drop at the beginning of the next year, but the trend has reversed in the past months."

 

From January to May, the average price of corn was RMB2.26 (US$0.35)/kg, up 11.2% from a year ago, and salaries for breeders hiked more than 20%, the Ministry of Agriculture said in a statement.

 

To buy a piglet in May and raise it to a 100-kg hog requires RMB1,230 (US$190), which includes feed and labour expenditures, up 15.6% from a year ago, according to the statement.

 

Yao Minpu, director of swine industry sector with the China Animal Agriculture Association, said the future corn price is one of the factors that will determine the prices of live hogs. He expects corn prices will continue to rise and prices of live hogs will not decline any time soon.

 

Hog farmers said prices of live hogs will remain at high levels this year as the industry still faces supply shortages and higher costs. "At least prices will not fall significantly before the National Day in October," they said.

 

Analysts forecast that inflation will pick up again in June to possibly around 6%, prompting the central bank to introduce further tightening measures.

 

The central bank decided on Tuesday to hike the reserve requirement ratio for the sixth time this year to contain stubbornly high inflation. The central bank also raised interest rates twice this year.

 

With pork prices going up, more breeders will come into the business and increase supply. Surging pork prices have significantly boosted benefits of hog farmers, with a net profit of RMB500-700 (US$77-108) from the sale of one live hog, compared with an average of RMB300-400 (US$46-62) under normal circumstances.

 

Such impressive earnings have ignited worries of scrambling and hoarding of hogs and pork. Many hog farmers started to hoard hogs and delayed sales for more profits, and many others followed suit.

 

Currently, raising hogs are more like speculation in stock market, said Zhong Xinfu, official of animal husbandry authority of Jiangxi province. Many of them expand breeding when pork prices are high and quit at lower prices, he said, adding such blind practices are likely to cause sharp volatility of prices. That explains the frequent ups and downs of pork prices in recent years, he said.

 

Yang said pork prices are at high levels now and may rise to a new high this year, so the blind expansion will trigger a balloon in supply that may lead to a price plunge at the beginning of next year.

 

Li Guoxiang, an expert with the Chinese Academy of Social Sciences, said the government does not have as huge stocks of pork as it has grain, and neither the breeding industry is as organised and concentrated as in developed nations.

 

There are thousands of individual breeders, prone to follow suit blindly and subject to price fluctuations, he said, calling for a new strategy to steadily develop the industry.

 

To cushion the impact of surging meat prices on the CPI and economy, authorities should sell stockpiled pork at the proper time and let the market to adjust prices, said Huang Fengyan, head of the Jiangxi bureau of animal husbandry, adding that more efforts on inspection and calculation of the industry should be made to guide rational investment.