Looking at the size of the breakdown of the inventory for April, 2014, the information from MOA is indicating 428.52 million on farm inventory and a 46.86 million sow herd. The 428.52 million on farm inventory is down 1.3 per cent from last month and down 3.7 per cent from April, 2013. The sow herd is down 2.2 per cent from last month and is down 6.8 per cent from one year ago (April, 2013). Over 1.05 million sows were eliminated last month. Hog production capacity has significantly been adjusted with the main cause being the loss of farm households. Despite the recent recovery of the market price for live pigs, several farm households are still in financial difficulty. MOA states that since the peak high of November 2013, the on farm inventory has dropped 8.5 per cent or about 36.47 million pigs…more than Canada’s total production for one year. Factors such as disease, cold weather and/or home consumption (mainly backyard farms) for Spring Festival, have all affected the total on farm inventory. Recently, the low prices have been sending sows to market as small farmers are lowering the sow herd size or are totally quitting the business. Recent losses of 400 to 500 RMB/market pig ($64.15 to $80.19 USD/market pig) greatly affects cash flow and bank repayments and with few pigs on a small or backyard farm, these producers can be out of business quickly. With the low prices, many small farms were holding back shipments before and after Spring Festival (January 31st, 2014) in anticipation that the prices would increase. However, the pig weights increased, but the price continued to slide, further increasing losses in profitability.

The large sell off of sows could cause a shortage of market pigs by the end of this year and thus a large increase in market prig and pork prices. This could have a large effect on the Consumer Price Index-something the national government does not like to see happen.

Profit margins are now showing smaller, but still substantial losses. Recently, the farrow to finish was losing 84 to 90 RMB/head ($13.47 to $14.43USD/market pig). On April 11th, a farrow to finish operation was losing 357 RMB/head ($ 57.25 US/ market pig). Some analysts calculate well over 400 RMB/head ($ 64.15 US/market pig) loss for some newer, more financially leveraged farms. On February 19th, 2014 it was reported that the losses for a farrow to finish operation was 199 RMB/market pig ($ 31.91 US/ market pig). Compared to one month before (January 15th), it was reported that profits for a farrow to finish operation was 49.06 RMB/market pig ($ 7.87 USD/market pig). Over the past 20 weeks, there has been a continuous decline in profits with large losses. Many farmers report that the current losses are the worst in 15 years (since December 2nd, 2013 when the pork price was 15.88 RMB/kg.($2.55USD/kg-$1.16USD/lb.) to April, 17th, 2014 when the prices were 10.6 RMB/kg($1.70USD/kg-$0.77USD/lb.)-a 33 per cent plunge in prices). However, since May 1st, 2014, the national price was at 10.84 RMB/kg ($1.74USD/kg-$0.79USD/lb) and after 20 days, the price was at 13.64RMB/kg.($2.19USD/kg-$0.99USD/lb.)-an increase of 25.83 per cent in the market pig prices.

What to watch for over the next few months

On February 19th, the NDRC announced that plans were being put in place for the preparation to buy pigs from the market and to store in frozen pork reserves to “prevent the excessive decline in hog prices”. The goal is to help to stabilize pig production and to maintain breeding stock inventories. By the end of March, the State had purchased about 65,000 tons.

Recently, Mike Van Schepdael, Vice President, Genesus and myself were at a large feed mill in south China and they reported their corn price was 2.45/kg.($0.39USD/kg.-$0.18USD/lb.) $8.00 a bushell posted. However, they mentioned that wheat bran had dropped further from 2.20 RMB/kg. ($0.35USD/kg.-$0.16USD/lb.) to around 1.6 RMB/kg. ($0.26USD/kg.-$0.12USD/lb.).