Pig farming profits break 600 yuan per head, supply-demand gap may continue to widen
On June 3, nationwide hog farming profits broke through the 600 yuan per head mark, while just two weeks earlier they were still at the 400 yuan level, and in the same period last year they were at the relatively low level of around 200 yuan. If hog farming profitability is classified as normal, relatively high profit, high profit and ultra-high profit, the pig farming industry is currently in a high-profit phase.
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. Corresponding to this, 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 hog farming will last throughout the whole of 2011," an analyst at a large brokerage told a Daily Economic News reporter.
Hog farming profits rise month by month
On June 3, the national average price of slaughter 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 profit per head for farrow-to-finish 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 a continuous rise for 8 to 9 months, with no seasonal downward 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 profitability of the hog farming industry also improved significantly. In July 2010, the profit per hog was at break-even; as hog prices rose, profit per pig successively broke through the 100 yuan and 200 yuan thresholds, and during November 2010, profit per pig broke through 300 yuan.
Entering 2011, hog 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, profit per head approached 500 yuan/head, and now it has exceeded 600 yuan/head. If the farming efficiency of the hog industry is divided into six stages —— relatively low, slightly low, normal, slightly high, relatively high and too high —— the current profit level of 610 yuan/head is already in the relatively high stage of hog farming profitability.
An analyst at a large brokerage believes that because this round of pig price increases was mainly caused by insufficient supply, the pressure of higher farming costs has been smoothly transmitted downstream. Affected by national restrictions on the use of corn for deep processing and sufficient soybean imports, domestic corn price increases are expected to slow in the future, soybean meal prices may fall back, and pig prices are in an upward channel, so the high-profit state of the farming industry will last at least throughout 2011.
The supply-demand gap may continue to widen
The main basis for judging the short-term, medium-term and long-term trends of 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 restocking increases, and sow inventory begins to recover. However, in mid-July 2010 the hog market entered profitability, yet enthusiasm for restocking remained consistently low.
Feng Yonghui, chief analyst at Soozhu.com, believes that the high incidence and frequent occurrence of swine diseases led to low enthusiasm for restocking, and coupled with frequent policy regulation and multiple reserve releases to stabilise pig prices, inventory fell to its lowest point since 2008 by the end of the first quarter of this year.
On the other hand, from restocking sows to affecting hog supply and pig price demand, there is a total cycle of 12 months: "3 months for mating, 4 months for gestation and 5 months for fattening." During this period, the recovery and increase in sow inventory and total inventory does not affect the supply of fattened pigs or pig prices.
Feng Yonghui believes that the supply-demand relationship for hogs in 2011 as a whole will be a tight balance, and the possibility of sustained oversupply is very low. Unless there is a special situation in which severe swine disease causes large numbers of sick pigs to disrupt the market, this gap may continue to widen.
In addition, in April national hog inventory rose 0.38% month on month. An analyst at a large brokerage said this was mainly caused by the replenishment of piglets, and it will be difficult to supplement market supply in the short term. At the same time, from January to April, China's breeding sow inventory had fallen for four consecutive months. The brokerage analyst believes that the turning point in breeding sow inventory changes is the factor determining the turning point in pig prices. Even if replacement gilts begin to be restocked now, it will take about 1 year to effectively supplement hog market supply.