With roughly half of the world’s sows, pigs, and pork production, any swine issue in China is a BIG issue. China has been the undisputed #1 pork importer for 14 years. And while the market has been relatively flat and stable the past 5 years, there is a new issue emerging with global consequence. Chinese hog farmers are losing money.
Serious losses are now accruing across China’s vast and diverse hog sector. Hog prices this week in China were reported at 11 rmb/kg live (US$96/cwt, carcass equivalent). That isn’t far off from U.S. prices which remain quite profitable, but in China those losses are over US-$40/head. With corn prices over $8/bushel and soymeal at $420/ton, these math is vastly different there. Note that current corn prices in China are the lowest since September 2021; from 2021-2023 their corn price averaged US$10.69/bushel.
These losses are deepening quickly across a sector with limited borrowing options (no land equity as all land is leased from the government). Cash losses in China lead to liquidation, usually much faster than in North America or Europe.
So what about their new Mega-Producers? These are the government-subsidized farms that expanded quickly following the massive African Swine Fever losses (2019-2021). With favorable financing and incentives they mass produced mega-farms across China, some multi-story hog barns over 20 stories high. While they report lower costs of production, they are not immune from these losses. The more pigs you have at a per-head loss, the bigger your total loss. But even with lower costs, these farms have proven difficult to manage. In the disease-dense China swine sector, bigger farms means bigger culls and losses when disease occur. And PRRS, PEDv, African Swine Fever, and host of other diseases abound. One consulting China vet suggested 20-30% of Chinese farms are dealing with African Swine Fever at any one time. So the big guys are not immune either.
In typical Chinese-government fashion, officials have called meetings, imposed production caps on large farms, and ordered frozen pork purchases for national inventories. But historically these have offered little help. The market-driven system works in China as elsewhere: low prices “fix” low prices. Liquidation will occur, possibly more among smaller and mid size producers. But those groups still represent more than half of China’s pig output.
What does this all mean? Historically liquidation in China leads to higher prices which lead to stronger import demand. But consider the reason behind these losses. According to government data it isn’t from a surge in production. That leaves demand. It is reasonable to believe that younger generations in China are not eating the 80-plus pounds of pork each year that their grandparents ate. They are eating more beef (China is now the #1 beef importer globally), more chicken, and more seafood. This liquidation may be a structural adjustment in China. And depending on the scale of liquidation this cycle may not spur prices sharply higher as had happened in the past.
Keep an eye on China hog prices and margins. No one on earth knows how many hogs there are in China, so price and margin analysis, combined with import trends, provide the only way to anticipate potential shifts in import demand. We’ll keep you updated.
~Brett Stuart