Looking at the size of the breakdown of the inventory for August, 2012-breeding stock was around 49.74 million and total on farm inventory was around 464.90 million (as compared to July 2012-breeding stock was around 49.54 million and total on farm inventory was around 460.75 million).

The 464.90 million head for August is up 1.80 % from last year while the August sow inventory is up 3.10 % from last year (year over year). Sow inventory has been quite flat from January to July. The slight increase in on farm pig inventory from last month shows that the effect that disease has had during the late fall (2011) and early winter(2012) on piglet numbers is easing up and piglet survivability has improved. Thus on farm inventory is improving. 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 a profit of 22 RMB/head-$3.49 USD/head average (but there is a vast range from losses of 110 RMB/head-$ 17.46 USD/head in some major pork production regions. Many farmers are saying they “hover“ at breakeven. Other farmers indicate some profits getting to 100+ RMB/head-$ 15.87+ USD/head). During the 3rd week of June, 2012, the estimated profit margin was 136 RMB/pig- $ 21.59 US/pig. At the end of March the profit margin was at 187 RMB/market pig-$29.68 US; down as compared to late January at 600 RMB/market pig-$ 95.24 US. Estimated profit margin for June, 2011, was around 770 RMB/market pig -$119.10 US and was the peak price. Average profit for 2011 was estimated at 500 RMB/market pig-$ 79.37 US.

Price /profit predictions for 2012 include: pig price of 16.6 RMB/kg liveweight ($ 2.63 US/kg liveweight); average price of corn at 2,500 RMB/tonne ($ 396.83 US/tonne); pig and corn ratio of 6.93: 1 and average profit of 350 RMB/market pig ($ 55.55 US/ market pig).

What to watch for over the next few months

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. For the timeframe, from October 10th to October 17th, pig prices continued to fall, but the main wholesale market for corn prices dropped even more. Pig to grain price rebounded to 6.09:1, the fourth consecutive week to be above the universally recognized breakeven point of 6.00:1 or better). The National Development and Reform Commission announced on October 23rd , the October 17th nationwide pig gate price of 14.87 RMB per kilogram($ 2.36 USD/kg), 0.34% lower than October 10th price; corn wholesale prices over the same period fell by 1.61% to 2.44 RMB per kilogram($.387 USD/kg). Thus for this weekly period, the pig to gain price rebound by 1.16% to 6.09:1. Currently for October 23rd, 2012, the pig and corn ratio has risen further to be 6.26:1 (a year on year decrease of 18.4%).

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 30.49% food found in the consumers’ basket. Pork is estimated to be about 1/3 of the food portion of the basket or in other words, about 8 to10% of CPI as a whole. Thus, with these calculations in mind, the price of pork in the entire CPI weighs between 2.5% to 3%. This level is much larger than the world's major pork producing and consuming countries, such as Japan (0.66%factor), United States (0.34% factor) and in Germany (0.71% factor) on CPI.

Currently, inflation is around 1.9% for September as compared to July at 1.8% and August at 2.0% (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). Recently food prices have decreased. Meat and poultry prices fell 6.0% in September. This affects the overall level of the CPI and it decreased by about 0.48 percent. As well, pork prices fell about 17.6% (year on year) and this causes the CPI to be down about 0.68 percentage points. 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. Analysts expected that the years’ average CPI will decline to 3.3% from 5.4% in 2011. (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. For the 4th quarter, Dr. Wang Yu Wen, from the Bank Financial Research Centre, suggests that the CPI year-on-year will be about 2.3% higher than the recently completed third quarter and for next year having a CPI that could be 3.5%.

The national average corn price for October 23rd, 2012 was 2.31 RMB/kg ($0.367US/kg), the national average wheat bran price was 1.79RMB/kg ($0.284US/kg) and the national average soybean meal price was 4.53 RMB/kg ($.719US/kg). National average feed costs were 3.23 RMB/kg ($0.513US/kg). The high and low price for corn and soybean meal can vary throughout different parts of China. For example, for the week of October 15th, the national average corn price was 2.388 RMB /kg-$.379 USD/kg (on October 14th it was 2.385RMB/kg-$.378 USD/kg, an increase of 0.14% for the 15th). Guizhou Province had the highest price at 2.650RMB/kg ($.421 USD/kg) and the lowest average price was in Henan, Gansu and Xinjiang Province with 2.100 RMB/kg ($.333 USD/kg). Furthermore, with soybean meal and using the same timeframe, October 15th, the national average soybean meal price was 4.219 RMB/kg-$.67 USD/kg (on October 14th, it was 4.222 RMB/kg-$.67 USD/kg, a decrease of 0.07%). Hunan Province had the highest price at 4.650 RMB/kg-$.738 USD/kg and the lowest average price was in Liaoning province at 4.055 RMB/kg-$.644USD/kg.

As recently reported in the China Daily, China’s soybean imports for August were down 1.45 million tonnes as compared to July, 2012 (August-4.42 million tonnes worth $ 2.73 billion USD as compared to July-5.87 million tonnes). According to data from General Administrations of Customs, soybean imports for the first 8 months of this year were 39.34 million tonnes (an increase of 17.4% year on year). These beans had a total import value of $22.3 billion USD (15.7% increase as compared to last year). This decline may continue as the tight supply from the USA and poor growing conditions in Russia and South America are causing price surges and reduced sources of soybeans.

Information from a report done by Dr. Wang YueWen from the Bank Financial Research Centre, indicates that due to rising labour costs and other production costs; the costs of commodities to be higher; plus the expectation for the economy to be better in 2013, he comments that the overall market pig price will be higher for 2013.

In the current 4th quarter, cooler weather usually means more consumption of pork. With the increase in on-farm pig numbers, the future pig price is difficult to predict (pig demand increased starting in August and September, but because of the improved pig breeding survival rate in the Spring , this has led to the supply of market pigs being larger. This oversupply relation will mean the pig prices will not likely change and also the future hog prices will continue to be weak.

Other analysts offer that the market pig prices can be quite mixed for the next while. Recently, hog prices were affected by the Golden Week and Mooncake Festival (7 day holiday in China). Before the holiday, merchants reserved in advance a large number of pigs and this pulled the hog prices upward. But after the holiday, demand declined and hog prices fell again. Again, hog prices/supplies can be affected by several factors in the 4th quarter. These include: early winter is the higher incidence of disease and some farmers will market at lighter weights to avoid losses from disease, and this in-turn drops the price and increases the supply. Cold stress can increase baby pig mortality and raise the incidences of baby pig diarrhea that also influences mortality and vitality. Feed issues such as moldy grains can cause more mating irregularity and more abortion losses leading to less supply. Imports from foreign countries, various levels of Government pig farming subsidies and whether the National Development and Reform Commission (NDRC) will purchase pork for frozen storage are all factors that can affect 4th quarter prices and supply. On top of this, around winter solstice, the Southern part of China begins to increase bacon production and this specialty can cause a sharp increase in demand and thus price (usually short term). This year, depending upon supply, the price may stay higher.

Since 2001, large specialized and/or commercial farms have been rapidly increasing in market pig production in contrast to the formerly largest production base from the backyard farms (backyard production has dropped from 74% of total hog production in 2001 down to 37% in 2011). From Rabobank International)

October 16th, 2012, the Commerce Department released September 2012 pig slaughtering data. In September 19.173 million hogs were slaughtered-an increase of 3.9% from last month and an increase of 11% over last year.

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