July 28, 2004

Higher Cost of Grains, Piglets and Transportation Drive China's Pork Prices Up
 

An eFeedLink Exclusive Report
 

In recent months, the sharp rise of pork prices in China has raised much attention.

In some provinces of China, current live hog inventory has generally fallen compared to the same period in past years, with the inventory of fattening hog incurring the biggest falls.  The tightening supply of live hogs has sent the prices of both live hogs and piglets up to a six-year high.            

In late May, live hog inventory in Jiangsu province stood at 12.1174 million heads, down by 8.11% compared to 13.1876 million heads in 2003.

In Anhui province, live hog inventory was around 17.6653 million heads during the first quarter of 2004, representing a fall of 6.3% over the same period of 2003. The number of slaughtered hogs was 929.36 million heads, down by 0.1% over the same period last year.

The main reasons behind the falling live hog inventory are that the higher production cost and increasing business risks associated with hog farming.  A Chinese farmer can make a profit of RMB100 per hog in good times but when the business environment turns adverse, losses would be more than the gains that could be made.

Some analysts say that the losses in hog farming during periods of economic downturn can be worse than those incurred by businesses in the other sectors of the economy. Furthermore, grains stockpiles in pig farming households is limited this year and it is generally felt that there are risks associated with procuring grains, at relatively high price levels, for raising hogs. It is thus not surprising that Chinese farmers' enthusiasm in hog production has been dampened.

Prices of most commodities have started to rise steadily since the second half of 2003, with spillover effect on the prices of feed ingredients, mainly corn and soybean. Since then, prices of these commodities have hovered at a high level. 

Prices of piglet have also been rising in tandem since February 2004. The higher prices of feed ingredients and those of piglets have correspondingly driven up the production cost for hog.

The recent Chinese government efforts to curb the violation of load limits on transport vehicles traversing the country's highways have increased the cost of goods delivery.

A meat-processing factory in Guangzhou has revealed that before the traffic authorities began closely monitoring the load capacities of vehicles in June 2004, a standard truck could transport 80 heads of live hogs at one go. But now, the number cannot exceed 60 heads. The result is the transport cost of a live hog has risen by more than a third or more.