By Lyle Jones, Genesus Sales Director – China
Pig prices in China have resumed their upward trend, resulting in the sell-off that began last July. At least 10 months of production capacity were reduced. Slaughter hogs closed on Friday, August 26 at 22.44 RMB/Kg (1 RMB = R$0.75) up 4% on the month. The national average price for 15 kg feeder swine closed at 715 RMB each, but exceeded 900 RMB in some areas. Cull sows closed at 14.59 RMB/kg up 6.3% over the same period.
This recent rapid rise in domestic pork prices has also attracted the attention of the National Development and Reform Commission (NDRC), which announced on August 29 that it will release government pork reserves from September. The effectiveness of these measures in keeping price increases in check and affecting hog prices in the fourth quarter remains to be seen.
Producers are most concerned about water shortages and power shortages in Sichuan, Chongqing and other regions such as Jiangsu and Shanghai. Many provinces and cities faced water shortages and power outages in the past week. We’ve seen reports of 12.11 million pigs in Chongqing experiencing high temperatures of 45°C and a lack of water – not a good combination.
Extreme heat and lack of rain have led to drought conditions that affect field crops and the supply of maize and other feed ingredients. Faced with water and feed shortages, many producers are accelerating the marketing of their hogs, despite the approaching peak demand season and the knowledge that profits will be higher after prices rise even further. The slaughter rate in Sichuan is reported to be 10% to 20% faster than normal.
Despite these current challenges, producers are generally optimistic in the short term as schools are opening and demand has traditionally increased approaching the all-important Autumn Festival and Chinese New Year holidays. At the same time, we believe that the hog supply is likely to decline further month-on-month as a result of liquidations that were only picking up steam for 10 months and lasting until 2022. Without a doubt, the liquidation is still taking place at some level.
Market Outlook: The combination of rising demand and tighter supply should keep prices up through Q4 and H1 2023. We expect slaughter hog prices to reach RMB 25/kg by the end of 2023.