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2012 Year in Review: China’s Hog Market

Published: Jan 09, 2013
by Michael Pareles, USMEF-Beijing trade manager

Following on the heels of a year of high profits, 2012 looked to be a blood-letting for China’s hog farmers. By some Chinese estimates, once-high hog profits plunged below the official break-even point for an agonizingly long six months.

But 2012 may not have been as unprofitable for Chinese hog production as the hog/corn ratio would imply. China’s large publicly-traded producers –New Hope Liuhe, Luoniushan and Chuying Agro-Pastoral – all have reported healthy margins and are on track for year-over-year revenue growth.

Disease outbreaks were not a major factor in 2012, with only isolated cases of foot-and-mouth disease in Liaoning and Jiangsu provinces. Porcine reproductive and respiratory syndrome (PRRS) also did not influence the market the way it did in 2011.

Anxiety over the U.S. drought and a large pest infestation in northeastern China exacerbated already-high Chinese corn prices over the summer, cutting deeper into hog producer margins. But these supply issue fears were really only trailing factors in a Chinese hog market that was already heading to a cyclical low.

Whereas in 2010 and 2011 live hog prices ticked up out of their seasonal post-Chinese New Year doldrums in late spring, this year was a different story. In 2012, prices just kept falling until August, when seasonal fall/winter consumer stocking started to bring them back up.

This price drop was due to several factors, including sluggish consumer spending and improved disease control. But the main reason was the natural progression of the Chinese hog cycle, with 2011’s high margins spurring production and supply, keeping a lid on prices.



The widely reported strategic government procurement of local pork in August and September was late to the party and a drop in the bucket in terms of overall volume, occurring after hog and pork prices had already started their seasonal rise. Pork prices also received an end-of-year lift from a drop in chicken consumption following widespread reporting of excessive antibiotic and hormone usage in domestic poultry farms.

In China, a live hog/corn price ratio of 6:1 is the official line separating red and black ink in swine production. That would put hog farmers in negative territory for a full six months of this year, according to data from China’s Ministry of Agriculture. But with improvements in technology and the rise of large integrated producers like New Hope Liuhe, most credible analysts think this price ratio is outdated and overstates current producers’ losses. Many analysts are now using a hog/feed price ratio of 4.5:1 to represent profitability. By this industry measure, China’s hog farmers spent only three months under water in 2012, and USMEF believes this is a more accurate reflection of facts on the ground.

With the windfall profits producers made in 2011, they were well-equipped to withstand the predicted 2012 market volatility that never materialized. There has been a notable absence of productive sow liquidation, with sow inventory even slightly up for the most of the year. Small farmers will continue to be edged out by larger, better-financed producers. But with market confidence on the rise and expectations of greater profits in the coming year, we don’t expect to see a spike in producers leaving the market in 2013.

Despite both lower prices and lower volatility, China’s 2012 pork imports will likely come close to the record volume of 2011. Through November, Chinese customs data show imports of pork and pork products of 1.242 million metric tons, nearly 6 percent above 2011’s pace. The value of imports for the first 11 months of approximately $2.2 billion already exceeds 2011’s record.



Market observers have been puzzled throughout the year by the strong import numbers given low domestic prices and ample supplies, but the ratio between Chinese live hog prices and those of major global suppliers has remained wide. For example, November live hog prices were approximately 90 percent higher than those in the U.S., or about the same differential as the last four years.

Looking ahead to 2013, some big questions remain. Piglet prices usually lag behind live hog prices, but with live hog prices expected to peak right before Chinese New Year (early February), and piglet prices still soft, are farmers restocking? If not, are we due for low supply and high prices in the first half of 2013?

Many in China expect the hog/pork supply to remain abundant through the first half of 2013, making the current pre-Chinese New Year rise of live hog and pork prices relatively short-lived, with piglet prices remaining soft due to ample supply. There are no reports of productive sow liquidation, so as long as sow inventory and prices remain at current levels and there are no large disease outbreaks, we are confident that farmers are still replenishing their herds and that a significant market hog shortage is not imminent.

In the second half of 2013, however, all eyes should be looking at any change in sow inventory numbers (will there be productive sows put to slaughter?). The disease situation in the spring also bears watching. If prices go back to the lows of this summer, it may be a more challenging environment for imports.