As a result of higher feed prices in the past year, hog margins have slowly eroded to a point where many producers will be lucky this year to end up in the black.

A US Grains Council team spent much of this week speaking with village level swine producers. Many told the Council it currently costs them 12-13 RMB per kilogram (around 91 cents per pound) to produce a hog to market weight, while the Chinese packer will give them around 12-15 RMB per kilo (about 99 centers per pound) for a live hog. According to the Agricultural Marketing Service, on 25 March, the weighted average live hog price for Iowa/Minnesota was quoted at 54 cents per pound.

This is a much different market, compared to the summer of 2011, when live hog prices peaked at around 20 RMB per kilogram ($1.47/pound). One farrow to finish operator in Yunnan province, who has capacity for about 100 sows, told the Council that in 2011 he made RMB 300,000 ($48,000) to distribute amongst his family and one employee. In 2012 he made RMB 100,000 ($16,000). This year, he is projecting a loss of about RMB 50,000 ($8,000). As a result, many producers are drawing down inventories and culling sows to reduce cost. "China will continue to have large swings in the hog price cycle because, despite rapid modernization of the industry, a majority of China's pork still comes from smaller-sized farrow-to-finish operations which tend to adjust inventories more quickly as prices change," said Dr Bryan Lohmar, USGC director in China.

Kevin Roepke, manager of global trade for the Council, accompanied the team and agreed with Dr Lohmar. "Although Chinese swine producers have seen better days, this certainly isn't the time to get bearish on Chinese agriculture—in fact, just the opposite. Many producers are positioning themselves to rapidly build their herds back up once grain prices moderate and hog margins recover. This industry is a sleeping giant."

The rapidly evolving Chinese swine industry is a case study in change with many parallels to the general pattern of rising incomes and new development associated with China. All throughout the rural (and semi-rural) areas, hog farms dot the landscape. Many farmers started out with 2-3 sows in their backyard, feeding table scraps and feed concentrates. In less than a decade, they have quickly grown to 100-150 sow operations, with complete feed rations. This rapid growth in feed demand bodes well for long term opportunities for US feed grains, and the Council continues to work closely with Chinese producers to build capacity.