September 25, 2023

 

China's bulk purchasing props up domestic pork prices

 

Pork prices in China have picked up appreciably since the government intervened in the market via bulk purchasing.

 

Prices trended low from the start of the year until suddenly surging in late July, data on Dalian Commodity Exchange futures showed. As of September 21, hog futures were ¥16.50 (US$2.26) per kilogramme for the nearest-term contract, up from the lower ¥13 (US$1.78) range in mid-July.

 

"One trigger for the reversal in prices is the Chinese government propping up pork through purchases," said Li Xuelian, senior analyst at the Marubeni Research Institute.

 

In July, the Chinese government said it had stockpiled 20,000 tonnes of pork to replenish national reserves. This marked the second such action this year after the one announced in February.

 

Last year, when "porkflation" escalated to dramatic highs, the government released pork reserves into the market to stabilise prices.

 

Excess pork supplies could force small hog farmers out of business, leading to an undersupply and higher prices. China has experienced such boom-and-bust "pig cycles" repeatedly in the recent past.

 

"In particular, the African swine fever epidemic in 2018 and 2019 sharply diminished the number of raised hogs, leading to the muscular supply recovery measures that have given rise to conditions prone for swings into oversupply," said Kenshi Momosaki, chief researcher at the Policy Research Institute under Japan's Ministry of Agriculture, Forestry and Fisheries.

 

China was apparently more likely attempting to stabilise prices through the pork reserve purchases, rather than driving prices up forcefully. Some predict that pork prices will continue to rise in the country.

 

The pork price slump caused Chinese hog breeders to weather losses for a record seven months, but conditions will likely improve in the second half of the year, an executive at the Chinese pork giant WH Group said in August on a quarterly earnings call.

 

"There are upcoming events where pork consumption traditionally increases, such as the mid-autumn festival at the end of September, the National Day break in October and the Lunar New Year holiday next February, so the apparent oversupply will ease and the supply-demand balance will tighten somewhat," said Li of the Marubeni Research Institute.

 

Higher pork prices are expected to visibly impact overall inflation trends. The consumer price index rose 0.1% on the year in August , according to the National Bureau of Statistics, reversing from the first decline in two years and five months, recorded in July.

 

- Nikkei Asia