As the hog industry in China continues to consolidate, local media outlet Securities Times published a story covering the financial situation of small backyard farmers.
Farmers in Sichuan province said there were basically no small farmers left in the area. There were a handful of farmers with a scale around 200-300 heads but low hog prices in the past year had caused them to lose money.
Small farmers are also reluctant to increase production despite the recent rally in hog prices. National average cash prices have rallied 67% in the past quarter. While small farmers are hesitant about entering the market after suffering losses, historically large enough price swings have enticed farmers to enter the market, leading to cycles of booms and busts in hog prices.
However, even if small farmers want to re-enter the market or expand capacity, they will find it increasingly difficult. Feed dealers interviewed for the article noted that they were unwilling to sell feed to smaller operations on credit due to the risk and the length of time it took the farmers to repay the loans.
African swine fever (ASF) prevention measures have also raised costs in recent years and many farmers lack the capital to re-enter the market as they need to pay upfront for more expensive feed, piglets, and maintain ASF control measures.
Large companies have also faced liquidity pressure earlier this year, but this pressure has eased as prices have risen above breakeven. Muyuan recently announced that it was deploying 790 million yuan ($116.9m USD) to six of its subsidiary companies involved in hog farming, feed purchasing, and poultry production.
The company announced on Thursday that its total cost of production on hog is about 15.5 yuan/kg. With national average prices at 23 yuan/kg, the company’s margins on hog breeding are back into positive territory.
Hog cash prices have stabilized after the recent rally; but futures prices have continued to fall. September Dalian hog futures closed over 3% lower on Thursday, extending their recent selloff.