On June 27, the main hog futures 2409 contract of Dalian Commodity Exchange closed at 17,615 points, up 18% from the closing price of 14,925 points on July 13, 2023, and has continued to fluctuate upward for nearly one year. Is the upward cycle of pig prices that the industry is looking forward to have come?
The upcycle has begun
"A new round of the pig cycle has begun." Zhu Zengyong, a researcher at the Beijing Institute of Animal Husbandry and Veterinary Medicine, Chinese Academy of Agricultural Sciences, and chief analyst of the monitoring and early warning of the whole pork industry chain of the Ministry of Agriculture and Rural Affairs, told reporters.
Since 2002, the mainland has experienced a total of 6 complete pig cycles. Each full cycle consists of an upward phase and a downward phase. Among the 6 rounds of pig cycles that have ended, the longest is the 3rd round of pig cycles (June 2009 to April 2014), which lasted 59 months and spanned up to 5 years; The shortest was the recently completed 6th pig cycle (April 2022 to March 2024), which lasted 24 months and spanned only 2 years. It began to rebound in April this year and entered a new round of the pig cycle.
After a long period of industry-wide losses, the pig price upward cycle has finally arrived. However, Zhu Zengyong reminded operators that they should still remain rational. Taking the recently completed 6th round of the pig cycle as an example, it did not fluctuate at a low level for a few years like the previous cycle, and then continued to rise for a few years, but continued to rise sharply from April 2022 to a high of 26.64 yuan/kg in October, and the market came to an abrupt end. After that, due to the sufficient production capacity and abundant supply of live pigs, coupled with the panic slaughter of super-large pigs for secondary fattening, the price of live pigs continued to fall from November 2022 to 14.95 yuan/kg in March 2024.
The new changes in the pig cycle that has just ended are worthy of vigilance in the industry. The sixth round of pig cycle rise stage is from May 2022 to October 2022, only 6 months, and the price per kilogram of live pigs in the cycle has increased by 1.98 yuan/month. On the supply side, due to the increase in farmers' pressure and secondary fattening, the price has risen rapidly in the short term, which has increased the price increase rate of live pigs in the cycle. From the perspective of the decline rate, the price per kilogram of live pigs fell by 0.69 yuan/month in the cycle. The high supply and the decline in demand have led to pig prices hovering at a low level for a long time.
Import pressure has eased
For a long time, the domestic pig price is significantly higher than the international market, and the import pressure is greater. The good news for the hog industry is that pork imports fell sharply in the first few months of the year.
From January to May this year, mainland pork imports were 427,000 tons, a year-on-year decrease of 47.1%; The import value was 830 million US dollars, a year-on-year decrease of 57.3%. Spain, Brazil, Chile, Canada, the Netherlands and the United States together accounted for 81.0% of the continent's total imports. The mainland imported a total of 201,000 tons from EU countries, accounting for 47.1%, down 3.8 percentage points from the same period last year.
Zhu Zengyong said that the factors that affect the mainland's pork imports in the short term are the domestic supply and demand relationship, domestic pork prices, and the difference between domestic and foreign pork prices. In the medium and long term, the factors affecting pork imports in mainland China are the difference in production costs and the complementarity of consumer demand between domestic and foreign pigs. In the context of no major changes in relevant trade policies, the high price of pigs in mainland China and the inversion of pork prices at home and abroad have become the most important factors driving the sharp increase in pork imports in mainland China in some years. Abundant supply and falling pig prices will drive import demand to decline rapidly to normal levels.
From the perspective of the price difference between domestic and foreign white pork, the price of pork in the first half of this year in mainland China fell by 2.7% year-on-year, which was generally at a low level, while the price of pork in Spain and other EU countries and the United States was still at a high level, and the price of pork in Brazil was also relatively high, and the price difference between pork at home and abroad fell significantly. In May, the wholesale price difference between China and Spain, the United States and Brazil was 3.3 yuan, 4.6 yuan and 6.6 yuan per kilogram, respectively, and the average in the first five months of this year was 3.7 yuan, 5.3 yuan and 6.3 yuan respectively, down 2.8 percent, 36.9 percent and 9.1 percent year-on-year, respectively. The difference between domestic and foreign pork prices has fallen back to the normal level, and the demand for imports has dropped significantly.
In the first half of the year, pork imports declined significantly, which had little impact on the mainland pig industry and market. In the medium and long term, the cost of domestic pig production, compared with the main exporters of pork, especially Brazil, the United States and Russia, there is still a certain rigid gap, while the mainland has a certain rigid demand for bone-in pork and pig offal consumption, although pork imports are expected to fall back to the level before African swine fever, but will still maintain more than one million tons.
Pig prices will not rise significantly
"Combined with the comprehensive research and judgment of the previous production capacity reduction and the current pig price trend, the pig price will generally show a seasonal upward trend in the second half of the year, and the market is significantly better than the same period last year. However, it is less likely that pig prices will rise sharply. Zhu Zengyong said.
From the production side, under the joint effect of market guidance and capacity control, the number of fertile sows in the country has continued to decline since last year.
According to the National Bureau of Statistics, at the end of the first quarter of this year, the national pig herd was 408.5 million, a decrease of 5.9% month-on-month and a year-on-year decrease of 5.2%. In the first quarter, 194.55 million pigs were slaughtered nationwide, a year-on-year decrease of 2.2%; The output of pork was 15.83 million tons, a year-on-year decrease of 0.4%. At the end of May, the breeding sow herd was 39.96 million, an increase of 0.2% month-on-month and a year-on-year decrease of 6.2%. From January to May, 136.04 million pigs were slaughtered by designated pig slaughtering enterprises, a year-on-year increase of 0.8%. The slaughter volume that began in February was lower than that of the same period last year, and 26.66 million pigs were slaughtered by designated pig slaughtering enterprises above designated size in May, a year-on-year decrease of 5.0%.
From the perspective of slaughter, although the year-on-year was higher than the same period last year, it decreased slightly month-on-month, indicating that the stock of medium and large pigs has declined. The decline in the number of fertile sows has led to the reduction of pig production adaptability, the situation of oversupply of pigs has been basically reversed, and the supply and demand have basically been balanced. According to the monitoring of the Ministry of Agriculture and Rural Affairs, from December last year to May this year, the number of newborn piglets in the country decreased slightly year-on-year, calculated according to the 6-month fattening cycle, in the next six months, the number of pigs slaughtered on the market will be reduced compared with the same period last year. On the other hand, pork consumption will gradually strengthen in the second half of the year and peak in the fourth quarter. In other words, in the second half of the year, the pork market will show a trend of weak supply and strong demand, and pork prices are expected to maintain an upward trend overall.
Zhu Zengyong suggested that the relevant government departments should stabilize the long-term support policies for pigs, guide farmers to reasonably arrange breeding and production, and improve the level of biosecurity. On the basis of scientifically grasping the future supply and demand of live pigs, the relevant government departments can optimize long-term support policies such as land use, environmental protection, finance and epidemic prevention, stabilize market expectations, and strengthen policy support for family farms and moderately large-scale farms, so as to avoid excessive concentration of production capacity and truly play the role of a market stabilizer for moderate-scale breeding. In view of the secondary fattening, circle fattening and pressure fence is the main reason for the short-term sharp fluctuations in pig prices in recent years, the relevant departments can strengthen the monitoring and early warning of the pig market, reasonably guide the market sentiment, and reduce the disturbance of speculative capital on the pig market. Relevant departments can also optimize fiscal and financial policies, give full play to the role of financial capital in regulating the counter-cyclical pig industry, prevent pig production capacity from being too fast or excessively reduced, and also prevent emotional overheating from leading to low-quality expansion of production capacity. In terms of the prevention of major animal diseases, the joint prevention and control mechanism can be strengthened, the farms can be guided to establish a correct concept of epidemic prevention, and the farmers can be encouraged to spontaneously improve the level of biosecurity, so as to fundamentally enhance the stability of pig production in the mainland. (Reporter Huang Junyi)
Source: Economic Daily
Editor: Zhao Jin