August 17, 2023

Overcapacity still a problem for China's pig farming despite recovering hog prices

China's pig farming industry is still dealing with overcapacity even though prices of live hogs have started to rebound, according to an analyst.

From August 1-10, prices of live hogs jumped by almost 15% to ¥17.3 (US$2.40) per kilogramme from 10 days earlier, according to data the stats bureau released on August 14. In early July, the average price slumped as low as ¥13.72 (US$1.88) per kilogramme.

The glut is not over despite the rising prices. Consumption has not recovered yet as prices of hogs dropped in early July, reflecting expectations of insufficient demand, an agricultural analyst told Yicai. The summer months of July and August tend to be the low season for pork consumption in China.

The price rebound this month is caused by regional floods that led to trimmed inventory, government policies concerning pork reserves and measures to control swine diseases, the analyst said. "We are not optimistic about future hog pricing," the source said, adding that overcapacity is still a problem even though demand is expected to recover in the second half.

From January to July, listed pig breeders increased their number of fattened hogs slaughtered for sale by 15% from a year ago, according to sales briefings. Last month, the corresponding boost was as high as 29%, reflecting excess supply.

Recent upward price movements could prompt farmers to refrain from slaughtering pigs that already weigh more than the standard, the analyst said, adding that this intensifies price fluctuations and affects the sector's de-capacity efforts.

A senior executive of New Hope Group told a market research institute recently that the third quarter is relatively crucial for the performance of the major pig breeder but prices are not expected to be significant between September and October. If prices keep falling in the quarter ending in September, the whole industry will face de-capacity pressures, the executive added.

Pig producers are expected to be forced to accelerate their attempts to reduce excess capacity after this year as by then, they are predicted to swallow up profits earned during a period of high prices  last year, according to a recent research report released by China International Capital.

- Yicai Global