After the recovery of swine fever and the “pork peak”, China’s hog stocks have been reduced by 75 billion U.S. dollars

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Agricultural products update

After the huge losses caused by African swine fever, China’s pork supply recovered. China’s largest pig-related stock has evaporated by about 75 billion US dollars, because the world’s largest pig farmers are struggling to cope with the “pork peak” of Chinese consumers. Possibility.

According to an analysis by the Financial Times based on Bloomberg data, the market value of large pork and feed inventories fell from their peak in February due to the fact that Chinese hog futures have fallen by more than 50% since they started trading earlier this year.

Officials stated that China has fully recovered from the effects of African swine fever, which was first introduced to the country in August 2018. According to analysts, new outbreaks of the disease continue to disrupt farms across the country, but after the effective halving of the supply, the size of China’s live pig inventory has increased significantly in 2019.

The wholesale price of pork fell by about 54% to RMB 20.17 (US$3.120) per kilogram, roughly the same level as before the swine fever pandemic reached China. However, reports from the local market claim that demand has not yet returned to previous levels, indicating that many Chinese consumers have permanently switched to other proteins.

“We have entered a period of structural decline in demand. We have a few years [pork] The prices are high and people are turning to beef, chicken or fish,” said Darin Friedrichs, an analyst at Shanghai-based StoneX. “In terms of consumption in China, we seem to have reached the peak of pork consumption. “

After the pathogen appeared as a Chinese farmer, the price of live pigs initially dropped Slaughtered and sold Their animals show any signs of contamination in an attempt to avoid almost complete loss of income if officials slaughter their cattle.

But one year after the first case in China, live pig prices started to rise, and many small farms that produced most of the country’s live pigs had run out of live pigs for slaughter, because the disease made raising new piglets too risky.

The share prices of many listed pork producers such as Muyuan have soared in 2020 as investors bet that large companies will be better able to implement the necessary biosecurity measures to prevent further outbreaks.

But with the increase in pork stocks, the profit margins of most pig farmers have fallen. This has dealt a heavy blow to companies such as Muyuan (whose market value has fallen by more than half from the peak in March), feed companies such as New Hope Liuhe, and feed companies that also have pig operations.

Pork wholesale spot price (yuan/kg) line chart shows a sharp drop in pork prices in China

New Hope Chairman Liu Chang issued a public letter of apology last month even after the company reported its first estimated loss in years. In the letter, Liu accused the Covid-19 pandemic, swine fever and weak consumer demand, adding that “this is not only a new difficulty for the company, but also a test for the entire industry”.

But Friedrichs of StoneX said that the dynamics of the industry have changed. Once the price drops may depress the output of smallholders, and ultimately lead to a rebound due to limited supply, he now expects the largest pig farmers to continue to increase production in order to compete for the dominance of the world’s largest protein market.

“Larger companies have all these advantages in terms of capital costs, government subsidies, stock issuance, and this will indeed accelerate the shift away from these small farms,” ​​Friedrichs said.

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