China’s hog prices recently jumped to their highest level in six months at $0.98/lb, but were still 7 percent lower than a year ago. This could be partially weather-related as back-to-back typhoons over the past two weeks made it difficult for some farmers in southern China to deliver animals to slaughter, so the uptick in prices may only be short-term. A meat safety scandal in Shanghai has received very heavy media coverage this week, but so far appears to have had little impact on livestock demand.
Many analysts are calling for higher hog prices by the fourth quarter, as herd liquidation has continued. But with production still at a relatively high level, price increases are not likely to be dramatic – even with the expected seasonal increase in demand.
Piglet prices were up slightly from the previous week but still down 17 percent year-over-year, reflecting ample supplies and sluggish demand due to producer losses. The hog:corn ratio increased to 5.22:1, but was still below the 6:1 profitability indicator and well below the ratio for the same period in 2011-2013. China’s latest corn prices averaged $10.52 per bushel, up 3.6 percent from a year ago, even as China prepares for another record harvest. China’s corn prices are nearly three times as high as U.S. prices, and over the past month U.S. hog prices have remained higher than China’s. The Chinese government is facing the challenge of supporting both corn prices and livestock producers. China’s hog output increased rapidly, reacting to the high prices in 2011, and the rebalancing of supply and demand is taking time. Unlike the rest of the world, China’s producers have not benefited from cheaper feed costs over the past year.
China’s Ministry of Agriculture estimated that the surveyed June live hog inventory was up slightly (+0.2 percent) from the previous month, but down nearly 5 percent year-over-year. The reproductive sow inventory continued its downward trend, falling 1 percent from the previous month and declining 8.2 percent year-over-year. The National Bureau of Statistics estimated China’s first-half pork production at 27.05 million metric tons (mt), 3 percent higher than in the first half of 2013. Considering the massive scale of China’s production, a strong 3 percent increase easily explains this year’s lower hog prices.
China’s imports have grown despite the presumed glut of domestic pork, partly due to the fact that Chinese consumers are willing to pay premiums for certain items like stomachs, feet and ears, which are not preferred by consumers in other major pork producing regions. China’s reported first-half imports of pork/pork variety meat were 680,782 mt, up 2 percent from last year. Import growth among major suppliers was led by the United States (206,484 mt, +22 percent). While on a much smaller scale, import growth from Chile (24,105 mt, +46 percent) was also very strong. Imports from the EU were lower (387,618 mt, -4 percent) as Germany faced plant restrictions early in the year. But volumes from Germany are now rebounding and imports are growing from Spain, France, the U.K., Ireland and the Netherlands.
In June, China’s imports slowed seasonally but were still up 1 percent from a year ago at 104,064 mt. Reported June imports from United States were sharply higher (32,130 mt, +38 percent) while imports from the EU were up slightly (60,451 mt, +1 percent) and volumes from Canada and Chile were significantly lower. Unfortunately, we might see significantly different trends in the July data after implementation of additional export verification requirements for U.S. pork. It is also important to note that China’s import data varies dramatically from U.S. export data, and that Hong Kong’s June import data has not yet been published. USMEF will provide further updates when the Hong Kong data is available.