Hog Market Sees Recovery with Surge in Prices
Late July has brought good news for the hog market as prices have seen a significant recovery. The national average price of lean-meat hogs has exceeded 17 yuan/kg, which marks a more than 20% increase compared to mid-July when prices were below 14 yuan/kg.
The recent surge in hog prices can be attributed to sudden factors such as heavy rains in various parts of China, but it also reflects the industry’s sentiment that has been in decline for over six months. Many have called for a reversal in the cycle and the recent rebound in prices suggests that the industry may finally be heading in the right direction.
However, industry analysts caution that a rebound does not necessarily mean a complete reversal. They believe that when pig prices soar, the risk of a decline also accumulates. Factors such as secondary fattening can disrupt production capacity, potentially dragging down the upward trend of prices.
The decline in hog prices started in the fourth quarter of 2022 and continued to fluctuate and fall until mid-July, when the national average price of lean-meat hogs dropped below 14 yuan/kg. However, since late July, there has been a noticeable reversal in this downward trend.
According to data from Sozhu.com, the hog market has been rising for more than half a month since July 18. The issuance of measures by state departments to promote economic development on July 24 further fueled the rise in pig prices. Currently, the national average price of lean-meat hogs has risen above 17 yuan/kg, with prices in most southern regions approaching 20 yuan/kg.
The recovery in spot prices of live pigs is also evident in the futures market. The live pig LH2311 contract recorded a 10% increase from its lowest price on July 14 to close at 17,500 yuan/ton on August 7.
Li Jing, a senior analyst at Zhuo Chuang Information, attributes the rise in pig prices to farmers adjusting their expectations for the future market. However, she also warns that as the price of pigs rises, the industry’s bullish expectations for the fourth quarter may decrease, weakening support for pig prices.
The improvement in hog prices has alleviated the loss situation for farmers. Some enterprises with lower production costs are now able to stop losses and even make a small profit. While not all producers are able to make profits, the degree of loss has eased, allowing everyone to breathe a sigh of relief.
Analysts also note that the current average market price is approaching the cost line. For farmers with low breeding costs, the prices at 16-17 yuan/kg cover their costs. With prices reaching 17.6 yuan/kg, 18 yuan/kg, 18.8 yuan/kg, and 19.4 yuan/kg, there is growing pressure on pig breeders and expectations for prices to touch 20 yuan/kg.
The recent rise in pig prices is driven by factors such as increased consumption during the summer vacation and the difficulties in transporting live pigs due to frequent rainstorms. The imbalance in supply and demand has led to price increases. Additionally, the enthusiasm for second fattening and replenishment has driven up the price of live pigs.
However, analysts warn about the potential for rebounds rather than reversals in the hog market. The recent increase in prices is due to the supply-demand mismatch for large pigs and the pressure on farmers to increase weights. The increase in pig prices is not a clear indication of a complete reversal in the market, as production capacity still needs to be further reduced. The price surge in July was primarily driven by the one-way increase in supply, while the downstream market lacked motivation to follow up.
Overall, analysts expect pig prices to remain high and fluctuate in the first half of August.