Hog futures in China slide, corn prices remain high

China hog futures slide further on pre-holiday selling spree
Live hog futures continue to fall, down another 2.4% today. Cash prices were relatively steady over the weekend. There is still an expectation in the market that there will be concentrated selling of large hogs ahead of the Chinese New Year holiday.

China’s state-planner NDRC said that hog-to-corn ratio was unchanged over the past week at 5.66 which put the average profitability of farmers at 280 yuan per hog. They also noted that downstream consumption is slightly weak which makes it difficult for pig prices to rise.
Much of the recent rally in hog prices was due to an increase in consumption, and winter is a period of seasonally higher demand, so it’s interesting the NDRC is noticing weaker consumption already.

Changing diet, expensive pork casts doubt on China’s soybean demand
Extremely high pork price in China in the past two years has changed the eating habits of consumers. Some of this change may be permanent as younger generations are increasingly health-focused and the two years of high prices just accelerated this trend.

If China is past ‘peak pork’ that would also have impacts on soybean demand. If consumers switch to poultry, that would mean less soybean demand as poultry has a better feed conversion ratio and takes less soybeans, relative to hogs, to produce a pound of meat.

Consumers are also switching to beef if the pace of demand growth outstripped the pace of supply growth in China. This means imports of beef have surged which is another possible negative driver to soybean demand in China. But it’s not all a pessimistic picture for soybeans. The consolidation of the hog market is still in the early stages and that shift to more professional hog raising could be positive for soybean meal.

China agriculture prices remain steady despite coal price meltdown
The National Bureau of Statistics provided a price update for 50 major commodities at the end of November. Relative to mid-November, 16 rose, 29 fell, and 5 remained unchanged. There were a few changes that caught our attention including coking coal price falling 32%.

On the agriculture side, things were fairly steady. Live hogs were up 2.8%, corn was down 0.1%, and soybean meal was flat. Urea fertilizer was down 3.4%, but as mentioned in our fertilizer articles last week, prices are still very elevated year on year.

Corn prices in the large producing province of Heilongjiang are around 2350-2425 yuan per ton ($9.36-$9.66 USD /bushel) at the moment. Famers have been relatively slow sellers of corn this year and the sales pace is around 10-20% behind last year because prices have been rising and farmers feel comfortable holding grain and waiting for higher prices.

However, in December we may enter a period of strong sales. Quality is still a major issue that is facing the market. Due to bad weather in the autumn, corn was relatively high moisture this year. Energy costs also spiked around harvest which made drying corn difficult.

Unfortunately, the weather is still causing trouble, the map below shows the temperature anomaly over the past 10 days. Much of China’s northeastern corn producing belt was anywhere from 2-6 degrees C (4-11 F) above average and these warmer temperatures could mean more potential for vomitoxins.

Over the past weekend Liaoning, Jilin, Heilongjiang, and parts of eastern Inner Mongolia saw temperature rises of 6-8 degrees C (11-14 F) which has again made the market worried about the quality of any corn being stored in ground piles.

Rising corn prices in China could be inflationary elsewhere
COFCO said the recent price increase in corn would affect their input costs for citric acid production. This is one of many relatively obscure niche markets that rely on corn. In the past decade, China’s FSI (food, seed, and industrial) consumption of corn has risen by 23 million tons cumulatively, hitting 80 million tons. The volume surpassed the total corn demand from the EU (78 million tons), and that of Brazil (73 million tons).

Citric acid is very commonly used in food and beverage preparation and China is the dominant player, accounting for 46% of all global exporters. Rising corn prices can spill over to other markets in surprising ways.

China’s central hub city to add more grain storage
Wuhan announced it would add 600,000 tons of grain storage capacity as part of their next five-year plan. This makes sense given its central location within China and local officials mentioned the role it would serve to help guarantee emergency food supplies to different regions across the country.

Wuhan is on the Yangtze River which connects to the major population centers around Shanghai 700km (400 miles) to the east. The Yangtze also goes west to Chongqing 750km (470 miles). Chongqing has seen new port facilities built on the river with a new 10,000 dead weight tonne port opening in September that has 14 berths and can handle annual cargo volumes of up to 25 million tons.

Major Chinese crushers buy more US, Brazil soybeans despite weaker margins
Large crushers in China continued to snap up soybean cargoes from the US and Brazil last Friday to cover China’s demand in the first quarter of next year, despite crush margins in the country weakening late last week.

According to market sources, at least 6-8 cargoes of January shipments from the US Pacific Northwest (PNW) and Brazil were traded. However, prices cannot be confirmed at this stage.
CFR China indications for January shipment of Brazilian soybeans were given at 280 c/bu over January 2022 CBOT futures. While the same shipment from the PNW was offered at 300 c/bu over the same futures. These offers rose 5-6 c/bu during last week.

Crush margins in China weakened on Monday. Margins for January shipments were valued at -$5/mt, down about $10/mt week on week, according to Sitonia Consulting data.