Factory Farmers Get Piggy — and Profits Plunge

Leading pig farming companies in China have seen their profits fall this year as live-hog prices declined.

The profit of Guangdong Wens Foodstuff Group Co. Ltd. plunged 75% to 1.8 billion yuan ($270 million) year-on-year in the first six months as supply increased while demand weakened, as consumer tastes shifted to cheaper chicken and duck, the company said in a report.

Other firms have also suffered setbacks. Chuying Agro-Pastoral Group Co. Ltd. said revenue generated from live hogs declined 23.4% to 1.34 billion yuan in the first half. Meanwhile, Jiangxi Zhengbang Technology Co. Ltd.’s hog sales dropped 18% to 1.6 billion yuan.

As the industry shifts from family farming to intensive, large-scale breeding, the average weight of live hogs has significantly increased, thus boosting supply, analysts said.

China’s Ministry of Agriculture unveiled a plan in 2015 that aimed to increase the proportion of facilities with an annual production of 500 hogs or more to 52% by 2020, up from 41.8% in 2014. Farms capable of raising more than 5,000 pigs are eligible for subsidies of at least 500,000 yuan to upgrade stalls.

New Hope Liuhe Co. Ltd., a front-runner in intensive pig farming, has recently struck a $300 million deal to build a massive pig-breeding base in Sichuan province. Its profit in the first quarter dropped 3.12% to 639 million yuan.

Hog prices had climbed for much of last year, hitting 21.22 yuan per kilogram (46.8 yuan per pound) in June 2016, according to commodity market consultancy SCI99. A year later, live-hog prices dropped nearly 40% to 13.26 yuan per kilogram, according to Dongguan Securities.

Hog breeders did very well in last year’s thriving market. Guangdong Wens profit surged 90% to 11.8 billion yuan, making it the most profitable company listed on the ChiNext board, a Nasdaq-like platform in the Shenzhen Stock Exchange. In 2016, Chuying Agro-Pastoral Group’s profit almost tripled to 869 million yuan, and Jiangxi Zhengbang Technology’s profit more than doubled to 1 billion yuan.

The industry’s sluggishness this year, however, will likely go on for a while. SCI99 analyst Ji Guangxin predicted hog prices will linger around 15 yuan a kilogram until the end of the year.

Live-hog prices could fall even further over the next year or two, perhaps dipping below 12 yuan per kilogram, though the situation will likely improve after 2020, said Feng Yonghui, chief analyst of live-hog information provider Soozhu.

Contact reporter Coco Feng (renkefeng@caixin.com)