As hog prices in China have fallen, so have piglet prices. Firms are looking for ways to cut costs, improve the efficiency of their operations, and improve their margins. This has led to many companies reducing their purchases of piglets from third-party operations and has led to a steep decline in piglet prices.
Piglet prices have recovered slightly over the past week, reaching 28.06 yuan/kg, up 1.7% w/w but still down 65.2% y/y. Piglet prices were extremely expensive in 2020 as large firms paid huge premiums to buy piglets and their herds amid rapid operational expansions.
Using piglets bought from other companies, as opposed to piglets produced on site, usually results in higher costs and lower margins.
Profitability last year was very strong so slightly lower margins weren’t a concern to most companies. However, the market has turned with companies actively looking for ways to reduce costs.
At current prices, the difference between using outsourced piglets versus self-produced pigs could determine whether a company makes a profit or a loss.
Wens Foodstuff, a large publicly traded hog producer headquartered in Southern China, reported recently that it had reduced the number of outsourced piglets in its operations to help cut costs. They reported in November that outsourced piglets accounted for only 7% of their total slaughter. Production costs in Q3 2021 were reported at 22 yuan/kg, but fell to 17.6 yuan/kg in November.
In August 2020, piglet prices were trading at the peak of 108.48 yuan/kg and live hogs were changing hands at 37.16 yuan/kg, a premium of 192%.
Most recently, these prices were seen at 28.06 and 18.33 yuan/kg, respectively, a premium of only 42%.
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