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Chinese Livestock Prices Spike Again

Chinese livestock prices, which seesawed after reaching all-time highs in August, have been increasing again as cold weather sets in and demand rises in advance of the early February Chinese New Year. However, unlike in August, price movements are showing significant regional variations, suggesting forecasting challenges lie ahead for exporters of livestock products into the market. The resumption of the price surge also demonstrates the difficulty the Chinese government is having controlling commodity price rises in the face of torrid economic growth.

Live hog, wholesale and retail pork prices in Beijing, Shanghai and Guangzhou are approaching summer records, with strong price movement taking place in the second 10-day period in November, according to intelligence from USMEF offices in China. National monthly average retail pork prices in China fell 2.8 percent in October to $1.46 per pound, but have rebounded strongly since the beginning of the month.

In addition to strong demand, live hog supplies to major urban markets have run into new snags. In North China, some analysts cite early winter fog and other adverse weather conditions as impacts on the transportation of live hogs to large cities, but increasing fuel prices are an increasingly important factor in pork supply chain economics. In Guangzhou, the south's largest city, supplies of live hogs to local slaughter facilities in recent weeks have been running just above half the city's requirements, primarily due to the increased shipping costs of the inter-provincial trade. Guangzhou relies on supplies from other provinces for roughly two-thirds of its hog supply. USMEF believes the fuel price theory may have credence as it would explain why hog prices in some markets have moved far less than in others. Last week, lean meat retail prices in Guangzhou reached $1.93 per pound while in Beijing the price was $1.16 per pound. Additionally, China has established a study team to determine whether a live hog futures contract could be offered from the Dalian futures exchange, one of the China's three main futures markets.

Other factors influencing supply include continued rise in feed costs, as well as competition from processors, who ramp up sausage and other processed meat production in the early winter to prepare for the seasonal Chinese New Year demand. Moreover, after several months of stability, poultry prices are turning upward. After pork prices hit record levels in August, consumers turned to fish and poultry in September and October. And although China claimed to have its PRRS problem under control by the end of the summer, regional outbreaks were disrupting markets in Northeast China throughout September. Chinese livestock analysts, speaking on anonymity to USMEF earlier this month, estimated that death losses reached into the low 10 million head, a magnitude higher than official figures.

Consumer anxiety has heightened since three shoppers at a Carrefour hypermart in Chongqing in Southwest China were killed during a stampede Nov. 10 after the store promoted the sale of discounted cooking oil. China implemented a price freeze on a number of state controlled goods and services in mid-September in an attempt to control price growth, but some measures, such as those for energy, were relaxed when spot shortages began disrupting the transportation network. Chinese President Wen Jia Bao, while visiting Singapore recently, was quoted as saying China would register 11.5 percent annual growth in 2007, while reiterating the need to tame inflation.

Current demand and market conditions for imported meat and poultry remain steady, if not stellar. Traders are hoping for a big finish by February's Chinese New Year, but border problems continue to plague shipment logistics. Increased inspections of U.S. pork and poultry continue at major ports like Shanghai, deterring direct shipments. Although November and December are usually peak buying months, demand for pork and poultry has stayed strong all year.

Hong Kong imports of pork and pork variety meat, a proxy of Chinese demand, exceeded 455,000 tons through September, a pace 29 percent above that of the previous record year in 2004. Meanwhile, U.S. poultry exports to China and Hong Kong of 575,000 tons in the first nine months of this year are just below the record pace of shipments in 2000. Aiding U.S. competitiveness has been a strengthening of the Chinese currency, which hit new highs in relation to the U.S. dollar last week.

A team of Chinese inspectors will be in the United States this week to visit U.S. pork plants that have been de-listed for ractopamine detections. Theories vary on the reasoning behind this trip as some note that China and the United States will hold high level bilateral discussions in mid-December during which current red meat access issues would likely be discussed. The Chinese traditionally have often used such venues to make concessions on contentious issues to improve the atmospherics of these meetings.

Another theory is that China may seek to buy more imported pork to further stabilize the market. USMEF believes there is still an unutilized import quota available to state buyers should the central government want to move ahead with another pork purchase. Some of the U.S. pork purchased under the first tender has reportedly cleared customs and inspection and is ready to either be placed in China's strategic reserve or sold into the market. China recently signed veterinary protocols with Spain and Germany, which will pave the way for the Chinese inspection and certification of plants in those countries to export of pork to China.