Pig farming profits rise month by month, exceeding 600 yuan per head in June

   On June 3, national pig farming profits broke through the 600 yuan/head mark, whereas just two weeks earlier they were still around 400 yuan, and in the same period last year they were at a relatively low level of around 200 yuan. If pig farming profitability is classified as normal, relatively high profit, high profit and ultra-high profit, the pig farming industry is now in a high-profit stage.

    On the other hand, the most important basis for judging short-term, medium-term and long-term trends in hog market prices——the index of changes in sow inventory——has fallen for four consecutive months, while the overall rise in hog inventory is due to the replenishment of piglets, so it will be difficult to supplement market supply in the short term. Correspondingly, the national average price of hogs and the average price of pork have repeatedly hit new highs.

    "It is highly likely that the strong prosperity of pig farming will last throughout 2011," an analyst at a large brokerage told the Daily Economic News reporter.

    Pig farming profits rise month by month

    On June 3, the national average price of slaughtered hogs was 17.7 yuan/kg, compared with 9.38 yuan/kg in the same period last year, up 88.7% year on year. The pork price was 26.95 yuan/kg, compared with 14.95 yuan/kg in the same period last year, up 80.27% year on year.

    As hog prices rose, the national hog-to-feed price ratio was 6.23:1 and the hog-to-grain price ratio was 7.83:1, up 72.09% and 69.5% year on year. The average profit per slaughtered hog for self-breeding and self-raising operations was 610 yuan, also the highest level since May 2008. In June last year, the profit per hog was still around 200 yuan.

    In July 2010, China's hog prices entered an upward cycle, and after demand recovered seasonally, the supply-demand gap in the hog market gradually widened, causing hog and pork prices to basically maintain continuous increases for 8 to 9 months, with no seasonal pullback or adjustment even after the 2011 Spring Festival. Specifically, from January to April 2011, the average hog price rose 40.27% year on year and the average pork price rose 33.04% year on year; in April alone, the average hog price rose 57.66% year on year and the average pork price rose 50.48% year on year.

    Along with the rise in hog prices, the profit situation of the pig farming industry also improved significantly. In July 2010, the profit per hog was at break-even. As hog prices rose, the profit per pig successively broke through the 100 yuan and 200 yuan marks, and during November 2010, the profit per pig broke through 300 yuan.

    Entering 2011, pig farming profitability further improved. From January to April, the average net profit levels were 307 yuan/head, 378 yuan/head, 365 yuan/head and 370 yuan/head respectively. By the end of May, the average profit per head approached 500 yuan/head, and now it has exceeded 600 yuan/head. If the breeding efficiency of the pig industry is divided into six stages——relatively low, slightly low, normal, slightly high, relatively high and excessively high——the current profit level of 610 yuan/head is already in the relatively high stage of pig farming profitability.

    An analyst at a large brokerage believes that because this round of hog price increases was mainly caused by insufficient supply, the pressure of higher breeding costs has been transmitted smoothly downstream. Affected by the state's restrictions on the use of corn for deep processing and sufficient soybean imports, the rise in domestic corn prices is expected to slow in the future, soybean meal prices may fall, and hog prices are in an upward channel, so the high-profit state of the breeding industry will last at least throughout 2011.

    The supply-demand gap may continue to widen

    The main basis for judging short-term, medium-term and long-term trends in hogs is the changing trend of sow inventory. Generally speaking, 3 to 5 months after the hog market reaches break-even, a turning point appears in sow inventory, enthusiasm for replenishing herds increases, and sow inventory begins to rebound. However, the hog market entered profitability in mid-July 2010, yet enthusiasm for replenishing herds remained persistently low.

    Feng Yonghui, chief analyst at Soozhu.com, believes that the high incidence and frequent occurrence of swine diseases led to low enthusiasm for replenishing herds, and combined with frequent policy controls and multiple rounds of reserve releases to stabilise hog prices, inventory fell to its lowest point since 2008 by the end of the first quarter of this year.

    On the other hand, from replenishing sows to affecting hog supply and hog price demand, the cycle is "3 months for mating, 4 months for gestation, 5 months for fattening", a total of 12 months, during which the recovery and increase of sow inventory and total inventory does not affect the supply of fattened hogs or hog prices.

    Feng Yonghui believes that the supply-demand relationship for hogs in 2011 as a whole will be in a tight balance, and the possibility of sustained oversupply is very low. Unless a special situation occurs in which a severe swine disease causes a large number of sick pigs to disrupt the market, this gap may continue to widen.