According to Rabobank’s latest report on the global pork industry, the first half of 2013 will be full of uncertainty as hog supply continues to rise despite the slowdown of the local economy. Accordingly, China’s pork producers are destined to face a challenging year.
However, this comes on the back of 2012’s potentially record year for imports, which grew by 80% over the first eight months of this year compared to the same period in 2013.
High production leading to volatility
This year is also expected to end with hog production at a higher level than was the case in 2011, even in the face of weak market prices. And given the ongoing expansion of large-scale hog farms, the first-half of next year will likely face oversupply and price volatility, resulting in a decrease in imports, the report predicted.
Chinese hog and pork prices bottomed out in July, followed by a slow recovery in August and September, driven by rising demand from two national festivals.
However, instead of going up as usual in this high season of pork consumption, Rabobank expects prices to remain stable with only small upward potential towards the end of the year. This is indicated by the weakening piglet prices seen since March, showing low profitability for farmers.
“Rising feed costs have not been fully compensated by slowly rising prices for consumers, which increasingly pressure finishers’ margins. Currently, farms with breeding herds can make thin profits while smaller finishers are only able to break even at the current price,” says the report.
Despite the weak hog market and rising feed costs, the inventory of both hog and sow herds increased unexpectedly in August. While smaller farms are hesitant to expand production, and some are even quitting the industry, larger farms are continuing their growth plans.
Large farms gaining ground
It is reported that over 10,000 head of breeding hogs were imported during the first eight months of 2012, more than double the number over the same period last year. This indicates a strong expansion of large farms that rely on imported breeds for hog production.
“Given the rapid expansion pace of these farms, their hog production is forecast to continue to increase at a faster pace than the recovery of the consumer market. This may further pressure smaller farms to leave the industry,” the report predicted.
In August, the Chinese government made another procurement of frozen pork, aiming to support market prices. Immediately afterwards, the ministries of agriculture and finance announced that all farms could receive a subsidy of CNY100 per sow, financed by the central government—something that Rabobank suggests is a clear signal that the government is continuing to strongly support domestic hog farming.