China’s live hog futures surged to hit a one-month high, tracking spot prices and helped by government stockpiling and falling sow inventory.
“The driving force mainly came from the supply side,” said Rosa Wang, an analyst with Shanghai JC Intelligence Co. Ltd., citing decreasing sow inventory as a factor.
China’s sow herd contracted by 0.9 per cent in August versus the prior month after a 0.5 per cent fall in July — the first decline in almost two years, according to data published by the Ministry of Agriculture and Rural Affairs.
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“Losses are expanding for pig farms as prices had (earlier) dropped too much and to even below four yuan per 500 gram in some areas,” said Wang.
Live hog spot prices in China’s northern, northeastern and central provinces like Henan, Shandong and Hubei have increased or held steady since the end of September after months of declines.
Large volumes of heavy pigs being sent to slaughter have weighed on prices, driving firms like Jiangxi Zhengbang Technology Co. Ltd. and New Hope Liuhe to sharp net losses in the first half of the year.
With falling hog prices causing sharp losses, producers sent their pigs including sows to slaughter to save on feed costs, eventually leading to a contraction in future output.
Analysts say the government’s stockpiling of pork for reserves also supports prices. China had said in June it would use state reserves to stabilize hog prices following a slide.
Its state planner said last month the total volume of reserves purchase will significantly increase, and that several provinces had already bought pork for their reserves while others plan to buy during the fourth quarter.
“In the short term, the second round of reserves buying will definitely provide spot price support,” said Haitong Futures analyst Yuan Shiyang.
