China pork prices continue to decline despite stockpiling effort

China’s hog and pork prices dropped last week both on a weekly and yearly basis, as a worse-than-expected demand and still sufficient supply continue to put pressure on the industry.

The average price of piglets in China dropped by 1.3% and 46% week on week and year on year, respectively, to CNY23.72/kg ($3.35/kg) during the last week of November, while the average hog price also dropped by 1.4% and 36.6% on the week and on year, respectively, to CNY14.99/kg, according to the weekly update from the Agriculture Ministry published on Monday.

The average price of pork meanwhile also declined by 0.5% week on week and 35.5% year on year to CNY24.81/kg.

The declines have dashed the hope of many in the industry who thought pork prices had touched bottom and should bounce back soon.

Such a hope was briefly encouraged, when in the week before last, hog and pork prices were seen to rise by 1.2% and 0.2% week on week, respectively.

Overall, China’s declining pork price, which is partly because of ample supply of the animal, has led to a hog-to-grain ratio of around 5:1 to 6:1 recently, below the break-even point of 7:1, meaning pig farmers are losing money, according to the government.

As part of the government’s bid to lift pork prices, it announced last week that it would purchase 10,000 mt of frozen pork for state reserves, the third batch of such buying this year.

The grim situation in the hog industry is also reflected in the soymeal market, where the average traded price of the soybean product dropped to CNY3,938/mt last Friday, compared with CNY4,008/mt on Monday, November 27, according to sources.

In terms of volume, around 418,400 mt of soymeal, most of which were spot sales, were traded last week, compared with 739,200 mt traded the week before.

Worse-than-expected demand

Chinese pork prices are under pressure for multiple reasons.

On the supply side, major pig companies have been selling pigs ahead of usual schedule for fear of the spread of diseases such as African Swine Fever, as well as their need to get revenues as there is more pressure on their cash flow at the year-end, according to a source.

Meanwhile, the demand for pork has been worse than expected, as due to a higher-than-usual temperature, Chinese households have yet to start stockpiling pork for curing, said the source.

Traditionally, Chinese families buy meat like pork in the winter to cure for eating during the Lunar New Year festival.

In addition, the recent spread of flu and respiratory illnesses in north China has also affected demand, according to sources, but there may still be reasons for optimism.

The sow herd has been dropping steadily, standing at 42.1 million as of the end of October, compared with 43.67 million in January, according to the Agriculture Ministry.

The 42.1 million sow herd represents a 0.7% drop week on week and a 3.9% decline year on year, according to analysts from Sealand Securities.

“We think as the [pig] industry is under dual pressure of capital outflows and debt repayments, so it would reduce its production capacity provocatively,” the analysts wrote in a note published on Monday.