China’s hog farmers struggle as pork prices swing and throw off debt-fueled expansion plans

 

·         In less than three years, the gross debt of the top five Chinese pork producers increased by nearly threefold, S&P Global Ratings said in a report Wednesday.

·         The outbreak of African swine fever beginning in 2018 decimated herds, and lured many businesses into China’s hog industry to take advantage of high prices, government subsidies and easy financing.

·         But the rush to expand pork production means the indebted companies now face pork prices that have lost half their value in less than two years.

 

Evelyn Cheng, CNBC

Sep 12, 2021

 

BEIJING — Massive swings in pork prices in the last two years are roiling China’s hog farm industry.

 

To capitalize on a doubling in prices in 2019, the five largest pork producers sought to expand quickly and increased their gross debt by nearly threefold over 2.5 years, S&P Global Ratings said in a report Wednesday.

 

But pork prices have tumbled just as quickly as they rose, pressuring the now-indebted producers. The consumer price index released Thursday showed prices for the Chinese meat staple fell 44.9% in August from a year ago.

 

An outbreak of African swine fever beginning in 2018 swiftly decimated China’s hog production by about 40%, according to Flora Chang, associate director at S&P Global Ratings, and an author of the report.

 

“The high price lured large pork producers to produce more. ... They borrowed aggressively to fund expansion,” she said, noting that due to the coronavirus pandemic in 2020, financing was easily available.

 

Entrepreneurs and companies also rushed to take advantage of government subsidies. Zhejiang province promised 1500 yuan or $231 for every breeding sow.

 

Three years later, that’s produced a glut of supply. Pork prices have plunged to around 20 yuan per kilogram ($1.40 per pound), near the same level of early 2019, according to wholesale price data from the agriculture ministry. At their peak in late 2019 and early 2020, pork prices were near 50 yuan per kilogram or higher, the data showed.

 

Planning challenges ...

 

Government efforts to stabilize prices ...  

 

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