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Source: Futures Daily
Pig prices have continued to decline since mid-January this year. With the passage of time, the price of pigs has accelerated and the decline has expanded. There is still no trend of stopping the decline, which has brought a series of chain reactions to the industry. With the gradual increase in demand in the market outlook, prices are expected to stabilize and rebound.
Analysis of the reasons for this round of pig price decline
There are three main reasons for this round of pig price decline:
One is the continuous release of production capacity in the early stage. After the peak of the African swine fever outbreak, as the national and local governments have increased their support for the pig breeding industry, after more than a year of capacity expansion, the pig market has entered a capacity cashing period at this stage, and the supply of upstream pigs has increased significantly. According to data released by the Ministry of Agriculture and Rural Affairs, the number of live pigs in May increased significantly, with a year-on-year increase of 23.5%, which is equivalent to 97.6% at the end of 2017, and prices are gradually approaching normal levels.
Second, the supply of fat pigs is sufficient, which drags down the overall trend downward. At the end of 2020 and the beginning of 2021, due to a round of African swine fever invading the Central Plains and some northern producing areas, the production capacity was damaged. The breeders began to reluctantly sell their products because of the increase in bullish expectations for the market outlook. At the same time, they selected secondary fattening, which led to the supply of fat pigs. The surplus has driven the price of pigs to fall continuously. In addition, due to the drop in pig prices, the phenomenon of stampeding out of the slaughter occurred, and the poor digestion of high-priced pig sources caused fat pigs to be forced to slaughter. When the price of pigs fell below the cost line, the farmers took the initiative to slaughter. There is a large backlog of fat pigs and an oversupply.
The third is the limited digestion of terminal demand. The decline in pork prices stimulated the growth of pork consumption to a certain extent, but the overall increase was limited. The downstream digestion capacity was relatively stable, and there was no large-scale increase. The oversupply pushed the price of live pigs to continuously fall.
Analysis of Futures Market Relations
After the Dragon Boat Festival, the live pig spot market performed poorly, and the 2109 contract, the main force in the live pig futures market, also continued its downward trend and hit a new low. On June 21, the lowest price of the live pig 2109 contract was 16,675 yuan/ton, and the highest price on July 1 was 19,615 yuan/ton. As of July 1, it closed at 18,890 yuan/ton. Recently, the price has been suppressed by the shorts after the rebound has pulled up, and then the futures price has been falling all the way, around the 19,000 yuan/ton integer mark to shrink in a narrow range and consolidate.
Timeline analysis
When there are no new variables in the current large supply and demand pattern, the main factors affecting the market in the future will fall on the micro level. One of the important reasons is the digestion of the big pigs.
From the winter of 2020 to the spring of this year, piglet diarrhea and local African plague appeared in some northern areas, and some institutions had remarked that production capacity was severely reduced. This caused some farmers to blindly replenish slaughter and re-finish, disrupting the rhythm of slaughter pigs. In the spring, a large number of standard pigs flowed into the secondary fattening market, and some farmers who went out to work also joined the secondary fattening army. The continuous drop in pig prices since April was caused by the stampede sell-off in this batch.
As the price of pigs fell to a staged low in April, gradually approaching the cost line of piglet fattening and breeding, farmers gradually became more resistant, and generally chose to hold down the pen (increased by about 30% compared to the normal secondary fattening weight) to fight against the decline in pig prices. This also postponed the time point when the pig was cleared.
At the beginning of May, as prices continued to fall, some areas fell below the cost of outsourced piglet breeding. There were bottom-hunting actions in the downstream, and speculative hurdles began again. However, the scale was significantly smaller than that in April, and the data showed about 50%.
Later trend analysis
To sum up, according to the analysis of the timeline of the slaughter of big pigs, according to the weight gain age, April is the peak period for the second fattening, and the peak period for slaughter pigs is from late May to July. From the point of view of the weight of big pigs, the weight of big pigs will still be larger from June to July, but it has gradually declined, and it is expected to return to normal in August. From September to October, the fall of autumn temperature is superimposed on the Mid-Autumn Festival and National Day consumption peak seasons, and demand gradually picks up. Both ends of supply and demand are conducive to the stabilization and rebound of pig prices.
In view of the current large-scale and accelerating centralization of pig breeding, the market share of large-scale breeding groups across the country has increased significantly from 8% in 2019 to more than 40% in May 2021. Large groups have obvious advantages in terms of capital and technology, and have high efficiency in replenishment. If the price of pigs rebounds, the supply capacity will be quickly supplemented. Therefore, the downward cycle of pig prices may last for a longer period of time. In the second half of the year, pig prices will only see a rebound, and the momentum for the turnaround is general. (Author’s unit: Zhaojin Futures)
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