Rising Chinese hog output set to erode profits by 2018: analysts


By Dominique Patton | Reuters

Thu May 18, 2017 | 7:20am EDT


QINGDAO, China | China's pig farmers will start to lose money next year as the country's herds are close to full capacity, analysts said on Thursday, which may undermine planned expansions of pork production.


China's farmers had earlier culled herds after a spell of losses, which pushed prices to a record 22 yuan ($3.19) per kg last year. As a result, companies including Cofco Meat, New Hope Liuhe and Guangdong Wen's Foodstuffs embarked on a building spree to expand production to chase profits of more than $100 per pig.


But prices have been falling for several months, driven by the replenishing of sows, said Feng Yonghui, chief analyst at consultancy Soozhu.com.


"Sows are not yet in overcapacity, but it will be very soon, within two or three months. Which means by next year this profit-making cycle will end and turn to losses," he told an industry seminar.


Prices have already tumbled from last year's peak to about 14.5 yuan per kg and are set to keep falling sharply, said Feng.


"Next year they'll fall to more than 5 yuan per half kg," he told Reuters on the sidelines of the seminar.


Sows removed from farms that have been shut in southern China to tackle water pollution are simply being transferred elsewhere, which is not leading to an expected further reduction of the hog herd, said Feng


Meanwhile, large farming groups have built new capacity further north, and many are still planning new projects. Top producer Wen's is targeting production of 27.5 million hogs by 2019, up from 17 million last year.


Productivity in China is also increasing, said Pan Chenjun, executive director of food and agriculture research at Rabobank Hong Kong, with the average piglets per sow now around 17.


"I agree with Feng that by middle of next year some farmers will be losing money," she told Reuters.


"Although a lot of farms have closed since 2016, it hasn't led to a real drop in production capacity."


She estimated pork production will increase by 2 percent this year, pressuring prices...