November 29, 2024

 

A four-month expansion of China's sow inventory and its implication

 

China's pig prices began to rise in the second quarter of 2024, and they remained at a high level as of the end of August.

 

As such, the country's reproductive sow inventory expanded in tandem after reaching its lowest level in Q1.

 

eFeedLink statistics show that China's reproductive sows entered an uptrend in May 2024. The number of conceivable sows increased from 34.96 million heads in April to 36.20 million heads in May, a month-on-month increase of 3.55%.

 

In June, it increased another 1.49% month-on-month to 36.74 million heads. In July, it increased by 1.06% month-on-month to 37.13 million heads. In August, it continued to increase by 1.86% month-on-month to 37.82%.

 

Rising steadily, the Chinese sow inventory increased for four straight months (May-August 2024), a strong sign of market recovery. The number of reproductive sows in China previously dropped to 4.70 million in Q1 2024 from 39.28 million heads in Q4 2023. After those four consecutive months of growth, it only expanded by less than 300 million heads by August, a substantial drop of 11.53% from 44.19 million heads in the same month of 2023.

 

Statistics show that in the May-August 2024 period, China's small- and medium-sized pig farms continued to cut their purchases of concentrated feed and low-concentration premix used for breeder sows. This means that they were still limiting sow inventories despite the pig market's recovery.

 

Due to losses in 2023, most of those farms no longer have the funds to expand their scale of sows, and most of them can only purchase piglets for fattening. As for China's pig breeding groups, although they have begun to make profits over the past few months, long-term losses in 2023 have led to high debts. Therefore, the largest ones were cautious about expanding production and focused instead on reducing costs and increasing efficiency.

 

Only some large groups now need to expand their sow production capacity.

 

There is a saying in the Chinese pig industry: the long-term trend of pig prices depends on the stock of sows and the medium-term depends on the stock of piglets. That is because the number of reproductive sows determines the quantity of finishing pigs 10 months later, as well as the price of pigs.

 

As previously noted, from Q2 2024 onward, China's pig prices were in an uptrend, corresponding to the country's inventory of reproductive sows 10 months earlier (around September 2023). Before this development, the number of reproductive sows started to decrease from September 2023 through the first quarter of 2024.

 

Pigs released from January to August 2024 totalled 32.78 million, a drop of nearly 10% from the same period in 2023. Therefore, the recovery of pig prices and consumption at a high level corresponded to the number of reproductive sows 10 months ago.

 

The rise in the number of sows during the May-August period theoretically points towards a modest expansion of live pigs starting January 2025. However, as the number of reproductive sows in May 2024 is 10-15% lower than that in 2023, the corresponding number of pigs for slaughter after January 2025 is set to be lower than that in January 2024 — but slightly higher than that in H1 2022.

 

Affected by the COVID lockdown measures in the first half of 2022, many activities in China were canceled. During that period, while the supply of live pigs was low, prices hovered at a low level. As these measures were lifted in the second half of the year, pig prices started to surge on the back of a long-term low supply of live pigs, climbing to a high of ¥28.80/kg by October 2022.

 

Live pig supply in January 2025 could be somewhere around at mid-2022 level. With pork demand traditionally high in January as the Chinese New Year approaches, pig prices are expected to remain strong in the coming period, potentially strengthening the profits of Chinese hog farms. 

 

- Shi Tao and Ngoh Seng Keong, EFL AG-DATA