Live hog prices were generally stable over the past weekend, with national average hog prices at 12.73 yuan/kg and a hog-to-corn price ratio still very lower at 4.61. Cash prices in the soybean meal market also continue to rise, with crushers raising their prices from between 80-120 yuan/kg.
Demand has been weak after the Chinese New Year holiday, according to recent news from Sichuan province. One stall owner said he was selling 150-200 kg per day, but after the holiday the volume plummeted to 100 kg per day.
While pork prices remain low after the holiday, merchants’ sales volume is about 20% lower than the pre-holiday level.
Hence, hog producers are trying to cut costs and increase the efficiency amid weak demand.
Muyuan, the largest public traded hog producer in China, said its current costs for raising hogs is 15 yuan/kg, and it is hoping cut it to 13 yuan/kg.
This illustrates the problem the industry is facing. Muyuan is a large, efficient, operator. Even if they managed to get costs down to 13 yuan/kg, they would still be losing money at current level. This paints a bad outlook for smaller or less efficient producers.
Hubei was the most recent province to announce reserve buying in an attempt to stabilize prices. However, the targeted volume for state buying is only 1,300 tons, which is unlikely to materially change the oversupply situation.