China’s Pre-Lunar New Year Pork Market Surprisingly Soft

China’s Pre-Lunar New Year Pork Market Surprisingly Soft

By Joel Haggard, USMEF senior vice president for the Asia Pacific region

Ample live hog supplies and the release of 70,000 to 80,000 metric tons of frozen pork from government reserves have tempered the seasonal run-up in pork prices that traditionally takes place in China’s pork market at this time of year.

On the eve of the lunar new year (which this year begins on Feb. 14), pork markets are being described as soft. This is a fortunate development for the Chinese government, which has allocated significant resources in order to restructure pork production and mitigate the industry’s notoriously pronounced hog cycle. Analysts are predicting stable live hog and pork prices this year, following a seasonal demand and price slump that normally occurs after the lunar new year.

Delivery of live hogs to large urban slaughterhouses slowed this week as migrants cleared out of eastern China cities to return to their homes. The live hog price on Thursday, Feb. 11, was approximately RMB 11.0/kg ($73/cwt.) — slightly below the level of last November when strong winter demand began to strengthen. The price of fresh pork – carcass basis – in urban markets was reported at RMB 16.16/kg ($107/cwt.).

Hog producers placed a large number of piglets on feed last fall in anticipation of seasonal demand. Pork supplies were further compounded by some early sales of immature animals resulting from concerns about potential disease outbreaks, and by the strategic release of government stocks in big-city markets. Moreover, China’s December 2009 direct imports of pork and pork products of nearly 60,000 metric tons (of which 75 percent was offal) reached their highest monthly level of the year. This large infusion of imports has contributed to the uncharacteristically soft pre-holiday wholesale prices for imported frozen offal in the past few weeks.

In a sign of the continuing transformation of China’s hog industry, the number of hogs in December 2009 originating from larger-scale farms increased by 22 percent over the level of December 2008. While China announced a raft of subsidy programs designed to encourage larger-scale production units, the industry managed - on average - to remain slightly profitable in 2009 despite abundant live hog supplies. According to analysts, each marketed live hog generated a profit of RMB 90 ($13) last year, but some believe China’s sow herd is too large to provide positive returns this year.

In another, less-publicized industry restructuring initiative, China’s Ministry of Commerce announced last month that it would cut outdated and small-scale slaughtering capacity by 50 percent by 2015. Of China’s 12,800 licensed slaughter establishments, only 7 percent have the capacity to slaughter more than 10,000 hogs per year. This is part of China’s effort to align a greater portion of its slaughter sector with the increasing size of its hog-raising units. In addition, the elimination of small slaughter facilities should ease the competition for the larger plants, which have recently endured higher processing costs.

China’s hog restructuring, subsidy programs and industry profitability point to ample hog supplies this year. In the first six weeks of the year, live hog prices have dropped by 12 percent. This counter-seasonal, pre-lunar new year decline bodes poorly for prices in the second quarter, when demand is traditionally weak. Analysts note that Chinese pork production in the coming year is expected to be up about 6 percent over 2008. However, given the strong possibility of disease-related supply disruptions, the market is being closely watching for any signs of catastrophic outbreaks. On Tuesday, Feb. 9, China’s Ministry of Industry and Commerce issued an advisory to local law enforcement officers to be on the lookout for “diseased pork” that may be sold in local markets, although no details were provided on specific regions where problems may be anticipated.

China’s large hog herd and ongoing market access issues continue to cloud U.S. pork export prospects in the coming year, though U.S. and Chinese government officials are scheduled to discuss the H1N1-related restrictions on pork imports again this week. In the meantime, Danish, Spanish and French pork continue to enter the country based on an agreement between China and EU suppliers that includes additional certification language on H1N1 herd surveillance activities, ante mortem inspections for H1N1 and pork plant worker hygiene.

According to Donald Song, USMEF North China representative, interest in U.S. pork items is still strong despite ample domestic supplies. Song notes that current Chinese live hog prices are 50 percent higher than U.S. prices, and that U.S. competitiveness will increase further if China moves forward with measures to appreciate its currency.

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.

For more information, contact Jim Herlihy at jherlihy@usmef.org.

USMEF complies with all equal opportunity, non-discrimination and affirmative action measures applicable to it by contract, government rule or regulation or as otherwise provided by law.

China’s Pre-Lunar New Year Pork Market Surprisingly Soft

By Joel Haggard, USMEF senior vice president for the Asia Pacific region

Ample live hog supplies and the release of 70,000 to 80,000 metric tons of frozen pork from government reserves have tempered the seasonal run-up in pork prices that traditionally takes place in China’s pork market at this time of year.

On the eve of the lunar new year (which this year begins on Feb. 14), pork markets are being described as soft. This is a fortunate development for the Chinese government, which has allocated significant resources in order to restructure pork production and mitigate the industry’s notoriously pronounced hog cycle. Analysts are predicting stable live hog and pork prices this year, following a seasonal demand and price slump that normally occurs after the lunar new year.

Delivery of live hogs to large urban slaughterhouses slowed this week as migrants cleared out of eastern China cities to return to their homes. The live hog price on Thursday, Feb. 11, was approximately RMB 11.0/kg ($73/cwt.) — slightly below the level of last November when strong winter demand began to strengthen. The price of fresh pork – carcass basis – in urban markets was reported at RMB 16.16/kg ($107/cwt.).

Hog producers placed a large number of piglets on feed last fall in anticipation of seasonal demand. Pork supplies were further compounded by some early sales of immature animals resulting from concerns about potential disease outbreaks, and by the strategic release of government stocks in big-city markets. Moreover, China’s December 2009 direct imports of pork and pork products of nearly 60,000 metric tons (of which 75 percent was offal) reached their highest monthly level of the year. This large infusion of imports has contributed to the uncharacteristically soft pre-holiday wholesale prices for imported frozen offal in the past few weeks.

In a sign of the continuing transformation of China’s hog industry, the number of hogs in December 2009 originating from larger-scale farms increased by 22 percent over the level of December 2008. While China announced a raft of subsidy programs designed to encourage larger-scale production units, the industry managed - on average - to remain slightly profitable in 2009 despite abundant live hog supplies. According to analysts, each marketed live hog generated a profit of RMB 90 ($13) last year, but some believe China’s sow herd is too large to provide positive returns this year.

In another, less-publicized industry restructuring initiative, China’s Ministry of Commerce announced last month that it would cut outdated and small-scale slaughtering capacity by 50 percent by 2015. Of China’s 12,800 licensed slaughter establishments, only 7 percent have the capacity to slaughter more than 10,000 hogs per year. This is part of China’s effort to align a greater portion of its slaughter sector with the increasing size of its hog-raising units. In addition, the elimination of small slaughter facilities should ease the competition for the larger plants, which have recently endured higher processing costs.

China’s hog restructuring, subsidy programs and industry profitability point to ample hog supplies this year. In the first six weeks of the year, live hog prices have dropped by 12 percent. This counter-seasonal, pre-lunar new year decline bodes poorly for prices in the second quarter, when demand is traditionally weak. Analysts note that Chinese pork production in the coming year is expected to be up about 6 percent over 2008. However, given the strong possibility of disease-related supply disruptions, the market is being closely watching for any signs of catastrophic outbreaks. On Tuesday, Feb. 9, China’s Ministry of Industry and Commerce issued an advisory to local law enforcement officers to be on the lookout for “diseased pork” that may be sold in local markets, although no details were provided on specific regions where problems may be anticipated.

China’s large hog herd and ongoing market access issues continue to cloud U.S. pork export prospects in the coming year, though U.S. and Chinese government officials are scheduled to discuss the H1N1-related restrictions on pork imports again this week. In the meantime, Danish, Spanish and French pork continue to enter the country based on an agreement between China and EU suppliers that includes additional certification language on H1N1 herd surveillance activities, ante mortem inspections for H1N1 and pork plant worker hygiene.

According to Donald Song, USMEF North China representative, interest in U.S. pork items is still strong despite ample domestic supplies. Song notes that current Chinese live hog prices are 50 percent higher than U.S. prices, and that U.S. competitiveness will increase further if China moves forward with measures to appreciate its currency.

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.

For more information, contact Jim Herlihy at jherlihy@usmef.org.

USMEF complies with all equal opportunity, non-discrimination and affirmative action measures applicable to it by contract, government rule or regulation or as otherwise provided by law.