According to the Ministry of Agriculture and Rural Affairs of China, the national average hog price had fallen for 15 consecutive weeks as of the third week of March.
The hog price has dropped by 67.4% from the peak of CNY 38.71($6.08)/kg at the end of October 2019 to CNY 12.62 ($1.98)/kg in the third week of March this year.
According to industry monitoring data, falling hog prices and rising production costs have resulted in an average loss of about CNY 300 ($47.13) for self-breeding and self-farming farmers when producing a 120-kg pig. Not only are small and medium-sized households losing money, but leading enterprises are also struggling.
Although the hog industry is struggling, the upturn trend has arrived.
According to the pig production costs in recent years, the price ratio of hog/corn at the break-even point of pig production is about 7:1. When the ratio is lower than 5:1, it means the first level warning zone of the excessive decline of hog price.
According to the Ministry of Agriculture and Rural Affairs monitoring of China, the national price ratio of hog/corn was 4.9:1 in February this year. Therefore, the central and local governments comprehensively started to store pork.
On March 22, the Ministry of Agriculture and Rural Affairs of China held a special departmental coordination meeting. They requested local governments to strengthen information monitoring and providing early warning of the entire industry hog chain.
They also asked them to:
- actively guide financial institutions to increase credit policy support
- stabilize long-term support policies such as farming land and environmental protection
- accurately implement regulation of hog production capacity and frozen pork collection and storage
- continue to focus on the normalized prevention and control of African Swine Fever
- promote the stable and healthy development of hog production, and
- help farm households to withstand over the difficulties.
The policy bottom – due to the introduction of favorable policies during the market downturn which recovered the market –
has arrived. Following this, market will soon bottom out, that is completing its lowest cycle. Since June 2003, China’s hog price fluctuation has experienced four complete cycles. The duration of these four complete cycles is 36 months, 36 months, 59 months, and 49 months respectively. Each complete cycle includes an up phase, a down phase.
The fifth cycle, which is currently running, was in an upward channel for 27 months from June 2018 to the end of August 2020. Its been in a downward channel for a cumulative 19 months since September 2020, for a total of 46 months.
The span of the current pig cycle is relatively close to the previous one, indicating the decline may have come to an end.
The hog price decline is expected to slow down under the boost of central and multi-local governments’ frozen pork storage. With the end of the two rounds of pork storage and the pressure of high production costs, farmers will gradually give up hoarding hogs. The stockpiled hogs will be released to the market, overlapping with the abundant supply of frozen products, and the overall market supply of pork will increase. Hog prices will remain low and adjust within a narrow range, but there may be little room for continued decline.
The pig farming industry must strengthen its confidence, speed up the elimination of outdated production capacity, and step-up industrial upgrading. The industry’s spring will not be far away.
The policy bottom refers to the fact that the country introduced various favorable policies during the market downturn, thus recovering the market and forming a bottom area.
The market bottom generally occurs after the policy bottom, when the market downtrend is completed to the lowest in the cycle.