China’s pork prices, which account for 60% of the country’s meat consumption, are plummeting, putting producers at increasing risk of bankruptcy and forcing the government to take actions including lowering production targets.
Pork futures on the Dalian Commodity Exchange, a key indicator of pork prices in the country, were at around 14 yuan per kilogram on April 16, reports Nikkei. Prices reached a high of around 26 yuan at their most recent peak in October 2022, but had fallen 40% to around 15 yuan by the end of that year, and have remained below 20 yuan since then.
China’s pig numbers plummeted between 2018 and 2021 due to an outbreak of African swine fever, after which Beijing encouraged pig farmers to expand production to stabilize supply.
China’s pork production in 2024 is expected to reach about 56 million tons, according to an April 11 report from the U.S. Department of Agriculture. While lower than last year’s level, the figure is about 50% higher than the approximately 36 million tonnes produced in 2020, and also higher than in 2017, before the African swine fever outbreak. The side effect of such strong policy measures has created oversupply.
In the past, when pork prices in China experienced a prolonged slump due to oversupply, farmers stopped raising pigs and some small businesses went out of business. This has led to a shortage of supply, causing prices to rise sharply and triggering a cycle in which the number of pigs and the price of pork periodically rise and fall.
The resilience of major pig farming companies is now being tested: Muyuan Foods, China’s largest pig farmer, which sells more than 60 million pigs a year, announced in January that it expected losses of between 3, 8 and 4.6 billion yuan for 2023.
Some major pork producers also face bankruptcy: Jiangxi Zhengbang Technology, the industry’s sixth-largest player in 2022, went bankrupt late that year and was reorganized; Fujian Aonong Biological Technology Group, the seventh largest company, is facing rising overdue debt resulting from deteriorating earnings.
An increase in large company bankruptcies could cause unexpected supply shocks in the future. The Chinese government is starting to take serious measures, announcing plans to lower the target number of breeding sows by around 5% starting in March, down from the previous 41 million to 39 million. Furthermore, it will consider 92% of that target, approximately 35.9 million sows, an acceptable level that does not require alarm, a relaxation from the previous threshold of 95%.
Pork prices have a significant impact on price trends in China. The consumer price index for March, announced by the National Statistics Office on April 11, rose 0.1% year-on-year, rising for the second consecutive month, but well below the target of government by 3% as it hovers close to zero.
While the decline in pork prices has led to downward pressure on the consumer price index, the deflationary pressure could ease to some extent if pork prices begin to increase in the future. China’s efforts to reduce the number of pigs raised will also likely impact the global grain market, as a decrease in demand for feed imports will put downward pressure on international market prices of feed grains such as corn and soybeans.
Luigi Medici
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