Bloomberg — Chinese creators currently have the lowest number of pigs for breeding since 2020, offering hope that the country’s pig farming sector is on the verge of achieving a profitability sustained after years of losses. Key indicators point to the market at its lowest point.
The main indicator was the fall in the herd of sows to less than 40 million head, the lowest level in four years, as reported by the government last week.
The number of sows determines the number of piglets and, ultimately, the amount of meat on the shelves.
As a consequence, pork prices increased by more than 10% over the past two months, while margins have been positive since mid-March.
The call pig cycle in China, where prices are driven by mismatches in supply and demand, has implications beyond agricultural income.
Analysts watch the cycle for clues about inflation, as pork, the most consumed meat in the country, is an important element in the basket of goods used to measure price changes.
Weakness in pork markets has contributed to deflationary pressures that have weighed on consumption in recent months, posing risks to Beijing’s economic growth target.
Still, the moves are insufficient to herald a major turning point, according to Zhu Zengyong, a researcher at the Chinese Academy of Agricultural Sciences. Instead, the market entered “a smaller-scale upward cycle,” he said.
“The decline in the sow herd, although continuous, is still not enough to restart a large new pig cycle,” said Zhu. “Furthermore, demand has been weak since the second half of last year due to the macroeconomic environment.”
The pig cycle in China is just another variant of the ups and downs that characterize commodity markets and typically lasts three or four years.
The current one started with a sharp drop in prices in 2021 after breeders expanded their herds to capture better margins.
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Fewer pigs now mean prices have once again risen, which is starting to attract speculators to the market, according to Cofco Futures.
O pig slaughter is expected to fall more than 5% in both the second and third quarters compared with the previous year, the brokerage said in a note this week.
Effects on inflation
China’s central bank is targeting 3% annual growth in the consumer price index (CPI) — which seems out of reach.
CPI grew just 0.1% in March, while prices actually fell from October to January, so any sign of a recovery in capital markets foods will be welcome, even if the improvement is driven by supply rather than demand.
While sentiment has undoubtedly improved, there are still hurdles to overcome to maintain momentum. recovery of the swine industry.
China’s tepid economy could limit further price gains if cash-strapped households continue to save. Some farmers may be too quick to restock their herds.
Others are keeping pigs that are ready for slaughter, fattening them further to make bigger profits, the Agriculture Ministry said last week. This will likely increase supply in the coming weeks and months.
And the market structure has changed in recent years. Previously, steep losses wiped out small producers, which in turn deepened supply deficits.
But consolidation has reduced the number of small farms, leaving more capacity in the hands of larger companies that can weather periods of loss.
“With production more concentrated in large companies, continued losses will lead to some production cuts, but they will not be as dramatic,” Zhu said.
See more at Bloomberg.com
