July 14, 2011

 

China's hog investment moves may have limited short-term impact

 
 

Government measures to raise China's hog population to head off sharp pork price rises may produce only limited results in the second half of the year, analysts said Thursday (Jul 14).

 

With sharply higher pork prices stoking Chinese inflation, Beijing said Wednesday it would resume a RMB2.5-billion (US$388-million) investment programme to support large-scale pig farms. Rising Chinese pork prices are also contributing to higher US pork futures prices, as exporters anticipate increased demand from across the Pacific.

 

China's pork prices have been rising since March 2010, reaching a record RMB23.61 (US$3.66)/kg in mid-June, 57% higher than a year earlier.

 

"We expect pork prices to rise a bit further in July, and pork inflation at about 60% on-year, and start to decline in August on the coming rise of pork supply," analysts said.

 

In addition to the RMB2.5-billion infrastructure investment budget, the government said it will provide a subsidy of RMB100 (US$15) per sow to encourage farmers to support pig production.

 

News of China's government measures underpinned prices, even as a USDA report Wednesday also showed US pork exports continuing to boom this year.

 

Beijing's subsidy to farmers for raising sows would effectively expand a previous subsidy that was limited to just "quality breeding sows," analysts said.

 

China has also made commitments to subsidise pig immunisation and other public-health measures to more closely supervise the potential safety hazards of rapidly ramping up China's hog population.

 

In any case, the measures are likely to take at least four to six months before it is clear if the policies are effective.

 

"Farmers only really began replenishing pig stocks in June, and these [new hog stocks] can only be brought to slaughter in four to six months," experts said.

 

China's hog population is expected to rise about 2% from 453 million head last year even with these enhanced measures, analysts said. "It's not that easy to increase the hog population and it won't have immediate results."

 

The investment programme for hog-farm infrastructure was suspended in 2008, once prices eased after the last spike, but bouts of foot-and-mouth disease from March 2010 and swine flu in mid-2009 culled the hog population, restoring upward pressure to pork prices.

 

"We expect prices will fall slightly [in the months ahead] but not that much, though the chances of a continued price increase will also be smaller," analysts said.

 

The pressure on pork prices has also fed into import demand for corn, though analysts said it is less clear if it will immediately result in higher demand for foreign pork.

 

Still, data from the US Meat Export Federation indicate 2011 US pork exports to Hong Kong and China could grow 14% on-year.

 

The increased demand is more apparent in the corn sector. China has bought 3.7 million tonnes of corn from the US so far this year, with sales for the full year likely to reach five million tonnes, an executive with a major state-owned grain trading company said.

 

Such a volume would dwarf last year's 1.6 million tonnes of corn imports and mark the second consecutive year China has been a net corn importer after 15 years of net exports.

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