Major hog firms team up to save costs amid slumping margins
Muyuan Foodstuffs, the largest publicly traded hog company in China, has recently partnered with WH Group, the owner of Smithfield foods, with a partnership in the raising and processing of hogs.
Muyuan has one of the largest hog operations in China, but their business is mostly focused on upstream production, such as breeding and feeding. WH Group has more downstream processing and distribution operations and has been a large importer of hogs from the US.
Recently, it was announced that China would raise the tariff on imported hogs which could pose a challenge to WH Group’s imports of US pork.
Margins for China’s hog companies have been squeezed over the past year as live hog prices tanked while feed prices remained strong.
Many firms have made efforts to bring all aspects of their operations in-house to better control prices and improve efficiency.
Many of the hog producing majors now run their own feed milling operations to improve their feed formulations and save costs.
Over the past year, many have also stopped purchasing piglets from third parties and switched to piglets from their own operations.
However, most companies are still concentrated in the upstream market and have few links to the slaughter, processing, and pork sales segments of the industry.
Previously, Muyuan’s sales to WH Group were relatively small, and the sales volume in 2020 was 380 million yuan (US$60 million), or 0.69% of sales. From January to September last year, this figure totalled 290 million yuan (US$46 million), or 0.54% of sales.
This new cooperation agreement is meant to cut operational costs including fees to middlemen and brokers during a time of low margins.
The major trend in the hog industry over the past years has been consolidation with large firms gaining market share while smaller players are forced out of the industry.
The next wave of consolidation is likely to be large firms working to move both up and down streams, taking great control of their feed operations, while also making move into the slaughtering and processing areas.
Dalian corn futures hit new highs on mold damage fears, supply deficit
Corn futures on the Dalian exchange hit new contract highs, reaching 2759 yuan/ton ($435 USD/ton).
The futures for May delivery have been rangebound since the start of November last year after rallied in the autumn despite China producing a record-breaking corn crop.
There have been concerns over the quality of crop, with industry surveys suggesting higher than average mold damage.
Corn prices have remained firm as China still faces a structural supply deficit due in part to a dramatic rise in industrial corn processing.
Transport volume falls in December as Covid cases rebound
Road freight traffic volume in China totalled 3.4 billion tons in December 2021, according to latest information from the Ministry of Transportation.
This is down 1.5% from November but up 1.6% compared to December 2020.
Intracity transportations that includes items such as metro lines, buses, and taxis, continues to indicate people are inclined to stay at home. There were 4.6 billion trips across the country in December, down 7.5% year on year.
This is 22.2% lower compared with a pre-Covid baseline in December 2019.
Foreign trade volumes at ports fell 4.5% month on month, but were up 2.9% on the year, and was 4.9% higher compared to December 2019.
Container volumes at ports continues to be robust with December recording 23 million TEUs, down 4.6% from the previous month, but up 0.7% year on year and up 7.0% from December 2019.
Covid outbreaks intensified in China towards the end of last year with major cities including Hangzhou, Ningbo and Xi’an went into different levels of restrictions after case-count spiked into three-digit figures.