Live hog futures on China’s Dalian Commodity Exchange (DCE) slumped more than 2% across the curve on Monday as funds dumped long positions amid weaker cash prices and mixed outlook for the second half of this year.
The most actively traded contract DCE hog futures contract slipped 2.7% since market open to close at 20,200 yuan/ton ($2993/ton) – the lowest point in a month. The contract is down nearly 4% compared to last Friday’s close, and lost 10% in value in the past two weeks.
Weaker hog futures were triggered by a wave of profit taking activities with funds cutting long positions. The open interest for September 2022 contract was down 1,279 lots, an equivalent of 20,464 tons.
Traders’ bullishness towards the hog market in China faded this month due to weaker cash prices which have been battered by government-backed interventions.
China’s state planner, National Development and Reform Commission (NDRC), blamed major hog producers’ collective efforts to restrict hog sales for the sharp cash price rally in May and June this year.
Hence, the NDRC encouraged companies to sell more hogs instead of trying to prop up prices further to the upside. It also suggested that the state pork stockpiler might start auctioning national pork reserves to cool prices.
Hog prices have been hovering near the record low level since the second half of 2021 due to an oversupply of hogs in China. Hog producers have been reducing their herds to push prices higher.
The action was welcomed by the Chinese government until the start of the third quarter this year when hog prices began to jump and will no longer have a cooling effect on China’s food price inflation.
In the first half of this year, food price CPI in China only gained marginally compared to sharp increases across the wider international markets, as low domestic hog prices offset the impact from rising prices for vegetables, fruits, grains and edible oils.
As China continues to stimulate its economic growth while containing inflation at the same time, the measure to keep hog prices low could last for months.