China’s live hog prices continued to move upward following the recent May Day holidays, with average national prices reaching a record U.S. $147 per hundredweight on May 6. That price is 52% higher than year-ago levels and 22% above prices recorded at the beginning of the year.
China’s pork situation was the talk at the SIAL China trade exhibition in Shanghai (May 5-7), where global pork suppliers continued to actively fill purchase orders in the wake of a counter-seasonal import buying surge following the Lunar New Year holiday in early February. In the meantime, China’s Ministry of Agriculture also held a press conference on the pork supply situation, claiming that further price spikes are unlikely and attributing the current market tightness to cyclical market conditions.Chinese processors attending the China Meat Association’s International Meat Business Networking Event — which was held on the sidelines of SIAL — spoke of several factors constraining domestic live hog supplies. Enforcement of environmental regulations have pinched expansion of production, especially in southern China and the east Yangtze River production areas, while processors focused on the marketing of carcasses to urban areas in eastern China have slowed slaughter levels as margins dip deeply into the red.
Others stated that small-scale farmers who exited raising hogs during the last cyclical downturn in 2014 and early 2015 have not jumped back into production. In addition, a short downward movement in live hog prices last November caused some producers to sell off supplies early, setting up the market for a sharper rally this spring. During the press conference, MOA spokespersons stated that although large-scale production now accounts for 45% of commercial live hog supplies, China’s 40 million mostly small-scale producers are still able to enter and exit the industry quickly. Thus China’s pork production will remain cyclical as the transition to more large-scale farms continues. MOA also cautioned farmers to restock piglets rationally, hinting that the large profits today could lead to over-production in the near future.
U.S. shipments up in March
The U.S. Meat Export Federation entertained a number of prospective pork buyers at its SIAL booth, with importers claiming that European supplies are tightening due to aggressive ordering over the past few months. China’s March import data from all sources showed a record-large volume of 233,440 metric tons, up 87% year-over-year. This included 114,689 mt of muscle cuts, up 117% from last year, which is a sign that the market is widening out to greater usage of imported items such as bellies and spareribs for table meat, and imported hams and shoulders for processing.
Although the United States shipped 50,695 mt to China/Hong Kong in March — the largest since December 2011 and up 80% from a year ago — U.S. market share in the first quarter remained at 19% compared to 68% for the European Union and 9% for Canada. Total Chinese direct imports during the January-to-March period reached 558,835 mt, up 64% from the pace of a year ago. Although EU export data is only available through February, EU exports to China/Hong Kong over the first two months of the year were up 63% to more than 300,000 mt.
While the mood among pork suppliers was upbeat at SIAL, there was also talk about when the market would turn. First and foremost, market conditions reflect a current supply crunch, without any new major sources of demand. Second, for those domestic producers who have hogs, profitability is ranging between $70 and $150 per head, stimulating a rush to expand production. Falling corn prices are also helping; MOA’s official average national corn price has declined more than 7% since the beginning of the year and is down 20% from a year ago, following recently announced changes to China’s corn price policy.
Lower corn prices and record-high hog prices are incentivizing restocking/expansion and helping spur piglet prices to record levels, more than doubling from a year ago. Limited supplies are also a driver of high piglet prices, with a smaller pig crop following the sow herd liquidation of 2014-15. It is also likely that regional disease issues this winter contributed to smaller numbers. This could delay the rebound in China’s pork production.
China's cyclical history
In summary, while there are different opinions on when new supplies may begin to hit the market, history has shown that China’s hog market follows a clearly cyclical, boom-and-bust pattern. The last time China’s prices hit record levels was the fall of 2011, when prices remained above 18 RMB per kilogram from June through October. Following a Chinese New Year holiday rally in early 2012, prices drifted lower. This year, prices have again been above 18 RMB per kilogram since late January. China’s piglet prices today are about 33% higher than their September 2011 peak, indicating it may take even more time for China’s supplies to rebound this time, and for prices to return to historical levels.
Following the MOA press conference, the Beijing municipal government started a two-month reserve release program for pork. While the release amounts are small — only 50 mt per day or approximately 2% of total daily consumption in the city — government officials are hopeful that the intervention will have a cooling effect on the market, or at least on the psychology of the market. According to media reports, subsidies will be paid to vendors as an incentive to lower prices. Subsidies will also be paid to slaughter plants that increase live hog processing levels. A number of other cities in China have initiated similar reserve-release programs. On the import side, there has been some cooling of wholesale prices for certain imported pork items, but activity at major wholesale cold storage markets remains extremely brisk.
In an effort to maintain momentum for U.S. pork exports to China, the USMEF held a large-scale seminar for regional meat processors in the southeastern coastal city of Shenzhen on May 13. A similar session is planned in Chongqing, in central China, in July.