Chinese pig prices still weak- trade outlook looks bleak?
Chinese live pig prices have been weak throughout the year, and while there has been some upward momentum since May, prices are still around 10% lower than year earlier levels.
For week ended 25 July, live hog prices stood at 12.52CNY/kg (140p/kg). Reports suggest this is around the breakeven point, though of course some individual producers will still be making large losses.
The low prices indicate that supply continues to exceed demand. This reflects increasing domestic pork production, as large industrial pig units continue to expand faster than smaller farms are exiting the industry.
With domestic prices still weak, opportunities for exporters have been reducing so far this year. In Q1, pork and pig offal shipments directly to China fell 10% year-on-year. China have not yet released their Q2 trade statistics. However, pig meat and offal shipments to neighbouring Hong-Kong continued to fall sharply in the second quarter of the year (-20%). With considerable trade occurring between the two countries, this likely represents continuing slow import demand from the mainland.
Interestingly however, a number of key suppliers have recorded year-on-year increases in shipments of pig meat and offal to China in Q2. While trade with China is generally anticipated to be lower throughout 2018, this may be a result of stockpiling in light of the ongoing trade war with the US. A second 25% tariff on US pig meat imports was implemented from the start of July.
Considering prices have remained weak, trade seems unlikely to pick up much in the coming months. The Chinese renminbi has also weakened in Q2, which will further disadvantage imported product over domestic production. That said, political factors could start to influence trade volumes in the coming months. Higher tariffs on US soybean imports into China could inflate the cost of Chinese pig production, increasing the pace at which less efficient producers are exiting the industry. This could cause volatility in supplies over the coming months, with culling of herds leading to production temporarily exceeding supply, before inducing a shortage.
Another factor that could potentially lead to supply volatility is disease, with African Swine Fever detected for the first time in China just last week. If the outbreak is contained, the impact should be limited, however developments will need to be monitored over the coming weeks. With poor profitability at present, producers may be tempted to lower biosecurity measures to reduce production costs.
In light of the current uncertainty, global pork suppliers will need to be ready to capitalise on any opportunities if and when they should appear.
Bethan Wilkins, Analyst
firstname.lastname@example.org, 024 7647 8757