High prices force New Hope Group's move away from pigs
Based in the country’s south west region, New Hope wants to cut the projected number from five million to 3.5 million next year due to the high cost of buying in piglets. New Hope believes it can reduce breeding costs by an average of RMB11-RMB12 per kg per pig by breeding its own piglets.
That was according to a briefing company chairperson Liu Chang gave on a recent conference call with stock analysts covering the firm’s listed arm, the Qingdao New Hope Liuhe Co. The price of piglets has not dropped at the same rate as pig prices since 2016, senior New Hope management told the analysts, who represented China’s leading stockbroking firms.
However, the company is aiming for a kill of 18 million pigs in 2021 – almost double current numbers – as it ramps up outsourcing to contracted farmers. New Hope claims to be 25% self-sufficient in pig raising, with the rest sourced from contracted farmers. It has made much of agreements with local governments to build breeding programmes and contract farming deals to help reduce rural poverty.
New Hope kills nine million pigs per year
As China’s top producer of animal feed by volume, New Hope has attempted to improve its earnings and margins by expanding into pork and poultry processing. In doing so, it aims to compete with Guangdong Wen’s, the country’s leading producer of pigs (and a feed provider). Margins on feed are tight, at RMB0.30-RMB0.50 per kilo. The net profit per pig averages RMB100 at an RMB14/kg kill-out, according to New Hope.
Listed among the world’s top five animal feed companies by sales, New Hope is China’s leading privately owned agribusiness firm, with more than 80,000 employees, an annual kill of nine million pigs, and hundreds of subsidiaries across the value chain.
The New Hope boss also pointed to the potential in further consolidation of China’s pork sector. “The competition is not between big companies, but between large firms and small (breeding, processing) firms,” according to the executive, who pointed out that 36% of the market in the US is in the hands of the top six companies, “so we have a long way to go in China”. The cycle in China right now is three to five years (between each fall in pig prices), “but with larger companies this period of time could be lengthened”, he said.
On the demand side, China’s pork consumption has remained “fairly stable”, according to the New Hope chairman. The transcript of his conference call also showed that New Hope management sees a geographic mismatch between production of pigs and meat processing centres. New Hope plants in Beijing, Shenyang and Nangang (Hubei province) are considerable distances from key breeding facilities, in part due to tightening environmental restrictions on animal husbandry.
While it claims an annual output of 10 million tons of feed, New Hope has continued to scour for higher-yield activities and has subsidiaries focused on finance and investment, as well as real estate and chemicals, according to filings made for its listed arm, Qingdao New Hope Liuhe Co.
A relative shortage of land means pig (and feed) production costs in China are higher than in other countries, where land and water are in more plentiful supply.
