Raising Pigs No Longer Brings Home the Bacon for China’s Farmers
Once a bonanza for small farmers in rural China, raising pigs has become a loss-making endeavor as prices have slumped and costs have soared, forcing the government to start an emergency pork buying program and prompting a warning to producers not to use the market for speculation or gambling.
An oversupply of pigs and the rising cost of grain used to feed hogs, mostly corn and soybean meal, have been squeezing producers’ profit margins. The average market price of live hogs fell to 14.1 yuan ($2.18) per kilogram (kg) in late June, the lowest in more than two years, according to data from the National Development and Reform Commission (NDRC), while the cost of corn feed (link in Chinese) rose to a record high of 3.01 yuan per kg last month, data from the Ministry of Agriculture and Rural Affairs (MARA) show.
Some 62% of monitored pig farmers were making losses in June, up from 9.7% in May and 1.1% in April, the official Xinhua news agency said in a commentary (link in Chinese) on Tuesday, citing MARA data. As well as hurting the incomes of millions of small farmers, the double whammy has led to hard times for many large listed agriculture companies involved in the industry.
Muyuan Foods Co. Ltd. (002714.SZ) warned its net profit for the first half of 2021 was likely to drop by as much as 12.83% year-on-year, while Jiangxi Zhengbang Technology Co. Ltd. (002157.SZ) said it expected to swing to a loss of up to 1.45 billion yuan. New Hope Liuhe Co. Ltd. (000876.SZ) estimated it would be in the red by as much as 3.45 billion yuan, and Wens Foodstuffs Group Co. Ltd. (300498.SZ) said it forecast losses of up to 2.56 billion yuan.
The tough times prompted a warning from MARA this week that it’s game over for the outsized profits of the last few years as supply and demand gradually return to equilibrium after several years of volatility.
“As consumption improves, the profitability of raising pigs may return to normal, but it’s important to remind the majority of pig farmers that the period of high returns has ended,” Xin Guochang, an official in MARA’s husbandry bureau told a Tuesday press conference (link in Chinese). “Stop betting on the market and pay more attention to early warning information from the agricultural authorities.”
He called on farmers to speed up the elimination of low-yielding sows, cut costs and improve efficiency. “In particular, do not listen to market gossip. Do not hoard hogs (in the expectation prices will rise). Slaughter them in an orderly manner,” Xin said.
Live hog prices surged in 2019, peaking at 39.8 yuan per kg in October that year, a 186% increase from the beginning of the year, NDRC data show, after outbreaks of African swine fever decimated domestic supplies of live hogs and led to a shortage of pork. Prices remained at a high level in 2020 but have slumped this year — falling by 61% from the beginning of January to late June — after farmers rebuilt their herds to levels seen before swine fever hit. China had 439 million live pigs at the end of June, 99.4% of the level at the end of 2017, MARA official Zeng Yande told the press conference.
To support farmers and cushion their losses, the government has stepped in to buy pork for state reserves under a new emergency plan that includes a three-tier early warning system based on the pig-to-feedstuff ratio to guide government intervention. The ratio, which compares hog prices with the cost of feedstuff, fell below 5:1 in late June. That triggered a level-one warning involving the mandatory purchase of pork by the government to shore up prices. The current official break-even point was set at 7:1 by the NDRC in June.
The government put out an offer to buy 20,000 tons (link in Chinese) of pork on July 7, 13,000 tons (link in Chinese) on July 14, and another 20,000 tons (link in Chinese) on Wednesday without disclosing the bid price, according to the China Merchandise Reserve Management Center, a government-backed agency in charge of state reserves for sugar and meat.
There are signs the market may have passed the worst. Live hog prices have rebounded to an average of 16.6 yuan per kg as of July 14, according to NDRC figures, and the pig-to-feedstuff ratio recovered to 5.85:1 last week.
Zhong Liying contributed to this report.
Contact editor Nerys Avery (firstname.lastname@example.org)
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