Hog futures hit 1-mth high amid more state buying, weather issues

Live hog futures on China’s Dalian Commodity Exchange (DCE) rebounded strongly since the beginning of this week and hit the highest level in a month after a three-day gaining streak.

The most liquid contract for September 2022 delivery closed at 19,390 yuan/ton ($2,894/ton) on Wednesday after reaching its one-month high of 19,500 yuan/ton ($2,910/ton). The contract strengthened 2% in the first half of this week.

The futures rallied against the backdrop of more state-backed pork purchases this week and poor weather conditions in southern China.

The Chinese state-owned stockpiler yesterday announced its 12th round of pork buying in 2022. This round of purchase of 40,000 tons will also be used to replenish the national pork reserve.

The purchase target for each round has been maintained at 38,000-40,000 tons since it started in March this year.

As hog price recovered in the pat two months, margins for hog breeders turned positive. Farmers in Henan province said they are currently making 50-60 yuan/head ($7.46-8.96/head), according to reports from state media CCTV.

Meanwhile, severe weather condition in southern China also lent bullishness to DCE hog futures as interprovincial and intra-provincial transportations for animal feed and livestock are impacted. Guangdong, Guangxi and Fujian provinces all issued alerts for heavy rainstorms this week and reported the third highest average precipitation level since 1961.

Southern China is a demand hub for animal feed as more than a third of the country’s oilseed crushing facilities are located in the region to supply soybean meal and rapeseed meal to its large hog population.

Guangdong is home to some of China’s biggest hog breeders such as Wens Group and Haid Group.