Pork Commentary: Asian Road Trip Week 317 August 2016
ASIA - Our Asia road trip continued last week having already been to Malaysia, Singapore, Thailand and now to China, writes Jim Long, President-CEO Genesus Inc.
In China it’s a real good time to be a swine producer. Profits are $100 to 150 per head. With 10 million plus market hogs a week in the world’s largest market, industry profits are at least $1 Billion USD per week. Its an extraordinary equity and profit builder.
On our trip we visited Wens, China’s largest hog producer currently marketing over 325,000 head per week. (17 million per year), 2 million yellow chickens per day and producing 10 million tons of feed.
Started just thirty years ago its amazing growth is a testament to its relentless pursuit of growth and excellence in the huge market of China with its 1.3 billion people.
Wens current plan of expansion is to produce 25 million hogs per year by 2020 and 50 million by 2025. If this transpires Wens will become the worlds largest hog producer.
Wens production model is they own the sow units and contract finish. Currently they have 22,000 production sites. While at Wens we were shown their production monitoring system that works in real time. The system unlike anything we ever saw is amazing in its technical sophistication and user friendliness.
Wens production is massive by any measure at 17 million hogs is only 3 per cent of China production.
There is large planned expansion in China recently Hu Song of the CSEA tabulated a list of what is planned for expansion over the next few years by some of the largest producers.
All this expansion if it happens will go a long way to cover the production loss from the big sow herd liquidation that just happened. Profits of $100-150 per head will lead to expansion of note we are told there is plenty of packer capacity in China and packers are finding it hard to make money. Pendulum swings. 2-3 years ago producers lost lots of money in China, Packers made lots then. Supply drops. Its Packers turn in the wheelbarrow.
Genesus genetic and sales joint venture with Cofco has been started and we had the first board meeting in Beijing last week. Cofco Meats Ltd. recently submitted P10 application to the Hong Kong Stock Exchange. Cofco produced 2.3 million hogs in 2015. Aiming to market 3.5 million in 2016. 5.5 million by Cofco by 2020.
Cofco is China’s largest agri-business with over $70 billion in sales annually in various business including grain, rice, beer, meat coca-cola distribution etc.
In China cost of building and equipment for a modern farrow to wean sow unit is costing between $2000-2300 USD per sow. Not much different then U.S costs. We see little cost advantage in China. Building equipment about the same, feed significantly higher and labor when you consider the number of employees is not as significant advantage on a cost per head basis. The big advantage is $380 USD for a market hog.
New Environmental laws in China will tamper the spread of expansion. All producers we met told us finding sites that they could build on is getting more and more difficult.
Also although China Producers are making great profits they are filling the equity hole when hogs were losing up to $80 per head. China Government statistics claim over 10 million sows were liquidated in 2014-2015. We all know sow farmers only quit when there losing money.
While in China we signed a breeding stock contract with Do Hong Men Meat Products. The company is the largest pork supplier north of Chinas Yellow River has packing capacity of 5.5 million head per year. A new 5,000 sow unit north of Beijing will receive Genesus Genetics to spearhead their plan to upgrade production and meat quality.
China will be fascinating over the next two years. We expect profits to stay strong for that time period. These profits will fuel expansion but we expect there will continue to be pork imports for the conceivable future. 1.3 billion people a growing economy will lead to further pork consumption per capita. The Chinese back yard hog industry will continue to retract as people leave the farm to urban areas. It is reported 20 million people migrate rural to urban a year and they don’t bring sows.Chinese Industry will be challenged by new environmental regulations, ability to get knowledgeable swine personnel, feed costs, capital needed for new construction and inventory.
In the meantime the Chinese Swine Industry makes great profits and pork will continue to be imported at record levels.
If you missed parts One and Two you can read them here:
|Author: Jim Long, President & CEO, Genesus Genetics|
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