In the first quarter of this year, there was a rebound of the epidemic in many places in China, and the epidemic prevention and control measures in various places had a serious impact on the catering industry and tourism industry. Government departments have issued a number of policies affecting the development of the pig industry. The "No. 1 Central document" issued in February aims to stabilize the basic production capacity of pigs and prevent wild fluctuations in pig production. At the same time, the National Development and Reform Commission and relevant departments started the regulation mechanism of frozen pork reserves in February, and coordinated with the regulation of pig production capacity to stabilize pig production capacity and prevent pig prices from falling sharply. In addition, the country reinstated pork tariffs to help ease the decline in domestic pig prices, which continued to fall due to an oversupply of pork.
1. Hog prices bottomed out and rebounded
In the first quarter of 2022, China's pig and pork prices remained low, and pig enterprises continued to suffer losses. According to the data released by the Ministry of Agriculture and Rural Affairs, hog prices from January to March in 2022 were 15.79 yuan, 14.06 yuan and 12.81 yuan /kg respectively, with an average price of 14.07 yuan /kg, 12.28% lower than that in the fourth quarter of 2021. In general, from January to April in 2022, the national hog price declined for 11 consecutive weeks, bottomed out (12.52 yuan /kg) in the fourth week of March, and began to rebound continuously. By the fourth week of April, the hog price reached 14.46 yuan /kg, with a rebound rate of 15.50%. Despite the rebound in hog prices, they are still at the bottom and hog breeding enterprises are still suffering serious losses, but finally positive signals are starting to emerge. With the effective control of the epidemic and the gradual recovery of the pork consumption market, hog prices may rebound further.
2. Rising feeding costs
In 2021, the feed prices of corn, soybean meal and live pigs have increased significantly compared with previous years, and the average price is the highest in the past five years. According to the data released by the Ministry of Agriculture and Rural Affairs, the average price of compound feed for finishing pigs in the first quarter of 2022 was 3.72 yuan /kg, up 2.2% from the previous quarter and 3.63% from the previous year. The average price of soybean meal was 4.19 yuan /kg, up 9.69% month-on-month and 10.55% year-on-year. From the perspective of changes in corn prices from January to April in 2022, influenced by the Russia-Ukraine situation, corn prices showed a rising trend from March to April. Generally speaking, the feed cost pressure of pig breeding industry increases obviously, and the profit of breeding shrinks. In addition, affected by the international situation, South America drought weather, is expected to continue to rise in the future feed prices.
China’s pig farmers mired in boom-bust cycle
3. Farming industry continues to suffer losses
The ratio of pigs to grain is a measure of the profitability of pig farming. When the ratio is about 5, pig breeding is basically at the break-even point. The higher the ratio is, the better the breeding profit will be; otherwise, the worse the profit will be. According to the data of the Ministry of Agriculture and Rural Affairs, the average ratio of pig to grain in the first quarter of 2022 was 3.83, down 57% from 8.96 in the first quarter of 2021. The decline was 13 % from 4.41 in the fourth quarter of 2021, the lowest since the outbreak of ASF in August 2018.
The overall hog farming industry is in a highly loss-making situation. The reasons for this were mainly caused by the continued downward trend in hog prices and the increase in the price of soybean meal and fattening pig compound feed. The increase in pork storage in the first quarter played a role in slowing down the downward trend of hog prices to a certain extent. However, the rebound of the epidemic led to weak market consumption, high pig slaughter volume led to market oversupply, plus the high cost of breeding led to a more serious loss of pig breeding in the first quarter of 2022.
4. Slow depletion of pig production capacity
In the first quarter of 2022, the capacity depletion of the hog industry continued to advance. 43.29 million breeding sows were stocked in December 2021 and fell to 42.9 million in January 2022, and by the end of March 2022, the national breeding sow stock was 41.85 million, down 3.1% year-on-year. Overall, in 1Q2022, the decline in breeding sow stock was not significant, and the de-capacity trend slowed down compared to the second half of 2021.
