China's hog farmers face long recovery

Surging feed costs, weak demand has hurt farmers
calendar icon 25 March 2022
clock icon 3 minute read

China's pig farmers, suffering record losses due to surging feed costs and weak hog demand, are switching to lower quality grain from pricier soymeal and even selling off assets in a bid for survival, reported Reuters.

The pain across the world's largest hog market, however, could last until next year, said analysts, shrinking incomes across China's rural economy and likely reducing imports of soybeans and meat by the world's top buyer for a second year.

The downturn follows a period of huge profits for many farmers, after the African swine fever virus devastated the herd three years ago, slashing pork output and sending prices soaring.

But after rapidly rebuilding the herd, producers found meat demand had shrunk because of repeated COVID-19 outbreaks that shuttered restaurants.

Now, after already enduring months of losses, farmers face a surge in costs, as already-elevated grain prices spike in the wake of Russia's invasion of Ukraine.

Average losses of 480 yuan ($75.42) on each hog slaughtered earlier this week were the worst ever, according to consultancy Shanghai JC Intelligence Co Ltd (JCI). Analysts say losses are across the board, from big corporates to the smallholder.

Hog sale prices currently average around 12 yuan per kilo, half of what they were a year ago, but costs at most large producers are still above 16 yuan.

"There aren't many options. If you have no cash, then you stop. If you still have some cash, you continue, and wait for an opportunity," said Wu Zhanhang, a farmer in Henan province with several thousand hogs.

'MAINTENANCE FEEDING'

With feed making up two-thirds of the cost of raising pigs, the industry is cutting back on protein-rich soymeal and replacing the best quality corn with cheaper, and often lower quality, substitutes.

"On some farms, pigs are hardly growing. It's maintenance feeding," said Jan Cortenbach, technical director at Wellhope-DeHeus, a joint venture between one of China's largest feed makers and a Dutch firm.

Soymeal futures have rallied 15% this month to a record 4,428 yuan per tonne on smaller than expected shipments of the oilseed from top supplier Brazil. Cash prices for the widely used animal feed protein are above 5,000 yuan. Corn is also at eye-watering levels.

"Our nutrition division is working on the best recipes with as little soymeal and corn as possible. We are buying rice, rice bran, coconut meal, sunflower meal, broken rice, basically anything cheaper and available," said a manager at a pig breeder with almost 100,000 sows in southern China.

Though the company has about six months of soymeal in stock, it is using as little as possible to make supplies last, she added.

MORE PAIN

While Beijing has urged farmers to get rid of some of their breeding sows, the herd of 42.9 million is still 5% bigger than needed, according to government data, indicating "abundant" supply this year, said Rosa Wang, analyst at JCI.

Though small farmers are likely to sell off their herds after sustained losses, large producers are less flexible. After major expansion in the last two years, top producers own a much larger market share that they are unwilling to give up.

Guangdong Wens Foodstuff is still expanding its herd, while New Hope Liuhe expects a "significant increase" in output after improving efficiency on its farms, a company representative said earlier this year.

Still, some have been forced to sell assets to raise cash, while local government firms are supporting No.2 breeder Jiangxi Zhengbang.

The government, wary of any meat shortages caused by a potential exodus of pig farmers due to huge losses, has called on banks to offer more credit.

With COVID-19 at its worst level in two years, weak consumption will continue to pressure prices, said Pan Chenjun, senior analyst at Rabobank. Wens estimates that prices, at best, could start recovering in the fourth quarter.

But many expect profits may not return until 2023.

"The negative margin could last longer than the historic record because demand is not normal," said Rabobank's Pan.

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