Looking at the size of the breakdown of the inventory for July 2012-breeding stock was around 49.54 million and total on farm inventory was around 460.75 million (as compared to June 2012-breeding stock was around 49.54 million (flat with July, 2012) and total on farm inventory was around 462.14 million).

This is about equal with the reported numbers for July 2011. The 460.75 million head for July is up 2.50% from last year while the July sow inventory is up 4.10% from last year (year over year).

Sow inventory has been quite flat from January to July. The drop in on farm pig inventory from last month shows the effect that disease has had during the late fall and early winter on piglet numbers and thus on farm inventory.

The 2011 total farm inventory was up about 4.9% or over 22.5 million head versus 2010. For 2012, total farm inventory is projected to increase by 5 to 6%. In 2011, the average inventory for breeding stock was 49.29 million and total on farm inventory was 468 million.

Profit margins continue to show declining returns.

Current profit margins are showing ranges from breakeven to losses from 40 to 110 RMB/head (US$6.35/head to $17.46/head) in some major pork production regions of China. During the 3rd week of June, the estimated profit margin was RMB136/pig ($21.59). At the end of March, the profit margin was at RMB187/market pig ($29.68); down compared to late January at RMB600/market pig ($95.24). Estimated profit margin for June 2011 was around RMB770/market pig ($119.10) and was the peak price. Average profit for 2011 was estimated at RMB500/market pig ($79.37).

Price/profit predictions for 2012 include: pig price of RMB16.6/kg liveweight ($2.63); average price of corn at RMB2,500/tonne ($396.83/tonne); pig and corn ratio of 6.93:1 and average profit of RMB350/market pig ($55.56). What to watch for over the next few months!!!

The 2nd quarter (April 1st to June 30th, 2012) predicted a bottom in the price for this year for slaughter pigs with an average price hovering around RMB14/kg ($2.22). For the third quarter (July 1st to September 30th, 2012), the price was to remain flat with a marginal increase for September. Currently, the price as of September 2nd, 2012 was RMB14.06/kg ($2.23). This is on par with the predictions. August 28th 2012 compared to August 28th, 2011 is down 26.6%. Certainly, with the higher summer temperature (which normally decreases pork consumption) and with the summer being the traditional off-season for pork consumption and then combine this with the increase in pork imports, the price of live pigs could continue to remain low.

The National Development and Reform Commission (NDRC) has started a new round of frozen pork purchasing and storage on August 7th 2012. Details were just being issued, but it appears that NDRC wants to bring pork reserves to about 100,000 tonnes and also to stabilize the price. As mentioned before, the high summer temperatures that causes lower consumption of pork along with overproduction, keeps the market price low. By buying the pork, the NDRC hopes to stimulate some market pig price increases.

Last year, most of the market pig price increase occurred around Spring Festival-late January 2011. Piglet mortality from an epidemic diarrhea had reduced the numbers weaned and thus affected the number of pigs marketed. This year, there has been a recurrence of the diarrhea; however, this year, there has been a lower demand for pork and the imports of pork more than doubled. Thus the rebound in pork prices did not occur this year.

In September 2011 the pig to corn ratio was 8.24:1 and in November, 2011, a pig to corn ratio of 7.42:1 was shown. For January 2012, a 7.79:1 ratio was calculated. Currently for August 28th 2012, the pig and corn ratio is 5.77:1 (last week, it was only 5.61:1). A pig to corn ratio of 6:1 is considered to be break even (Currently, it has been about 20 weeks that the pig to corn ratio has been below what is considered the baseline for break-even).

The Consumer Price Index (CPI) continues to be quite interesting for the National Government. Previously, when the pork prices were gaining, this rapid increase in pork, gained the attention of the National Government as it greatly affects the CPI. The CPI is made up of about 30% food found in the consumers' basket. Pork is estimated to be about one-third of the food portion of the basket or in other words, about 10% of CPI as a whole.

Currently, inflation is around 1.8% for July as compared to June at 2.2%. June inflation was down from 3.0% for May (with July being the lowest level - 30-month low since February 2010). This is a drop from the high of 6.5% in July 2011 (37-month high). CPI for January was 4.5% and was 3.2% for February. Food prices increased by 2.4% in July compared with one year ago. Pork, China's staple meat source, has been declining in price and thus the decline in pork and fruit prices is offsetting the rise in vegetable prices. Meat and poultry again fell by 6.1%.

The impact of food price data affects the overall CPI level with a fall of 0.48%. Pork prices have fallen by 18.7% and this has affected the CPI at a level of 0.71% since the beginning of the year. Analysts expected that the years' average CPI will decline to 3.3% from 5.4% in 2011. Predictions for August and September could see a further drop in the CPI. (For the first 6 months of 2012, inflation has averaged 3.3%). This is lower than the 4% set by the National Government. This may give more space for the government ministries to readjust macro-economic policy.

The national average corn price for August 28th 2012 was RMB2.46/kg ($0.39), the national average wheat bran price was RMB1.89/kg ($0.30) and the national average soybean meal price was RMB4.30/kg ($0.683). National average feed costs were RMB3.22/kg ($0.511). This is up slightly from the week before - RMB3.21/kg ($0.510).

As of July 12th, 2012, China's output for summer grains (mainly wheat and early rice) had shown about 129.95 million metric tonnes of output. This is up 2.8% year on year. This surpassed the previous record set in 1997 of 127.68 million metric tonnes. Wheat production is the largest portion of the summer grains. There has been an increase of 3.34 million metric tonnes (increase of 3%) to a level of 114.3 million metric tonnes. With the record drought in the US (56 year old record), this small increase will not offset the demand for corn and soybeans (and meal) via imports and the rapid increase in the price of the imported ingredients.

As one interview with a farmer mentions: Head of the farm the Yuli Fang told reporters, "I purchase records, June 5, into soybean meal for 3390 yuan/ton (US$538.10/ton), to June 27 rose to 3640 yuan/ton ($577.78/ton), up more than 20 days 250 yuan/ton ($39.68). Then began skyrocketing, rose to 3760 yuan/ton ($596.83) on July 5, the latest price had risen to 4090 yuan/ton ($649.21), that is to say the last 20 days rose by 450 yuan/ton ($71.43).

Beijing Orient Agribusiness Consultant Co. predicts that the import of US pork will grow by 29% this year. Last year, there were 620,000 tons of pork imported into China and 480,000 tons came from US suppliers.

As well, the National Government will also release corn and rice from the state reserves to help to slow inflation and to reduce the need for imports. It is estimated that the state will release about two million tonnes in the next while. Furthermore, the USDA has increased the estimate for corn production in China to about 200 million tonnes (2.5% increase from last year). Because of the increase in corn crop plus the drought in the USA, estimated China corn imports for 2012 will decrease from five million tonnes to about two million tonnes.

^{•With notes from: the pigsite.com; China Daily, Asian-agribiz.com; MOA; NBS; soozhu.com and various Chinese Ministries.}