Pig prices decline to low levels, potentially accelerating industry capacity reduction

According to monitoring by the Ministry of Agriculture and Rural Affairs, on April 3, the national average wholesale market price of pork was 15.15 yuan per kilogram, down 3.7% from 15.73 yuan per kilogram on last Friday (March 29). This week’s average price was 15.34 yuan per kilogram, down 3.2% compared with the average price of 15.84 yuan per kilogram last week.

This week, the domestic hog weekly average price fell month-over-month. According to data from China Hog Farming, on April 3, the price of hogs (outside three) was 10.13 yuan per kilogram, down 0.3% from 10.16 yuan per kilogram on last Friday (March 29). In terms of weekly average prices, this week’s hog average price was 10.1 yuan per kilogram, down 1.1% from last week’s average of 10.21 yuan per kilogram.

This week, the national average transaction weight for hogs edged down slightly. According to monitoring by Zhaochuang Information of the national average hog transaction weight, it was 125.85 kilograms, down slightly by 0.03% month-over-month. By province, the main line of average transaction weight this week showed a downward trend; some areas saw slight increases. However, because the declines were small, and because the breeding side had earlier accumulated hogs that were concentrated into scheduled slaughter and sale, the national average decline in weight was relatively small. With hog prices continuing to probe lower at the bottom end, losses increased, and some breeding operations accelerated their exit/sale schedule, causing the average ex-sale weight to edge down slightly. Meanwhile, some slaughtering enterprises reduced their procurement volume of lower-quality big hogs, and the average purchase weight also fell slightly. Only places such as Heilongjiang, Anhui, and Shaanxi, where some earlier accumulated hogs were released for sale, drove a slight increase in average transaction weight. This week, the operating rate of key domestic hog slaughtering enterprises rose month-over-month; the average weekly operating rate was 36.67%, up 0.89 percentage points from last week. Breeding enterprises had a relatively high enthusiasm for selling hogs, hog supply was ample, and the low pork prices provided slight support for downstream demand. Slaughtering enterprises’ orders increased slowly, and meanwhile some slaughtering enterprises experienced inventory receiving (warehousing) activity, supporting further increases in operating rates.

Guosen Futures believes that on the fundamentals side, the group farm hogs’ exit/slaughter plans will continue to increase in April, and average weight has started to decline, indicating that group farms have begun to proactively destock. Meanwhile, the average weight for hogs from small households continues to rise, and some have a mentality of holding/squeezing for a better price (holding hogs to wait for a higher price). Judging from the average exit/slaughter weight for the whole industry, it dipped slightly this week, but the absolute level is still high, reflecting that the pace of industry destocking is relatively slow. With the pig feed-to-hog price ratio at a low level, there is a lack of economic incentive to hold hogs for higher prices; in the future, it may force the industry to accelerate clearing inventory. From a medium-term perspective, based on earlier data on piglet births, it is expected that the theoretical supply volume of slaughter pigs in the third quarter will remain at a high level, meaning the duration of supply pressure will be extended. From a long-term perspective, as losses in the piglet peak season are currently high, it will stimulate faster industry capacity reduction; in the future, closely monitor the verification of indicators such as the slaughter volume and price of culled breeding sows.

CITIC Securities Shanxi believes that the hog industry may face pressure in the first half of the year, but it is also a time window when capacity reduction (capacity going-out/withdrawal) is relatively favorable. Because the industry’s tasks of reducing leverage and repairing the balance sheet have not yet been completed, if industry prices remain persistently low, they may further support market-oriented capacity reduction. Under the guidance of the policy for the hog industry’s “anti-overheating/anti-inner-competition” measures, the capacity reduction under policy regulation is also being advanced in parallel. In addition, the slope of the efficiency curve of sow production capacity represented by PSY (the number of weaned piglets provided per sow per year) may be slowing down, at least on a phased basis. This year, there may be the third time since 2021 when capacity reduction occurs with a clearly notable magnitude. The fundamentals and valuation of the hog breeding industry are expected to be repaired.

Zhaochuang Information expects that in the coming week, the national market trend may show a pattern of range-bound movement with a downward bias. On the supply side, the volume of hogs exiting/slaughtering may increase gradually, and there is a trend of lowering average weight on the breeding side, which may accelerate the selling of hogs. As a result, the increase in hog supply may have a negative impact (a bearish influence) on market prices. On the demand side, downstream slaughtering enterprises’ slaughter volumes are relatively stable, leaving limited room for improvement, so their support for hog prices is limited.

(Source: The Paper)