Industry recovery success rates won't exceed 50%, and pork prices are expected to rise by 50% in 2020 compared to last year.

In May, hog prices continued to decline, triggering panic within the industry. Could it be that pig production capacity has indeed become oversupplied? Reporters learned from several publicly listed pig farming companies that a large number of previously stalled pigs—held back due to the COVID-19 pandemic—have recently been released into the market. As a result, the second quarter is expected to see the lowest point in hog prices for the entire year. However, a rebound and subsequent price fluctuations are inevitable moving forward, and overall, the supply of live pigs this year will still remain tighter than last year.

Chart of the average price trend for external three-way live pigs:

Why are pork prices continuing to fall?

According to the successive announcements released by several listed companies From January to April, overall, listed companies saw varying degrees of growth in their first-quarter hog shipments, thanks to expanded pig farming operations that resulted from last year's investments. Notably, Zhengbang Technology and Tianbang Shares both doubled their hog output. However, due to declining pork prices, the companies experienced a month-over-month drop in revenue.

Taking a leading enterprise as an example, Wenshi Shares reported its first-quarter hog production figures. Sales of live pigs and fresh products totaled 2.2526 million head, down 62.2% year-on-year. In April, the company sold 864,200 commercial pigs, representing a 1.43% increase from the previous month—but the average selling price of live pigs fell by 5.65% month-on-month. Muyuan Shares reported first-quarter sales of 2.564 million live pigs, a decline of about 16.7% compared to the same period last year. Meanwhile, in April, the company sold 1.247 million pigs, up 18.5% year-on-year; however, the average selling price dropped to 29.1 yuan/kg. From January to April, Zhengbang Technology cumulatively sold 1.5351 million live pigs, marking a 32.16% decrease year-on-year. In April alone, the company shipped 486,800 pigs (including piglets and commercial pigs), showing a 19.95% rise month-on-month but a 15.36% drop year-on-year. The average selling price for commercial pigs stood at 33.45 yuan/kg, down 4.16% from the previous month. Tianbang Corporation’s sales of commercial pigs from January to April reached 688,500 head, a 33.6% decline compared to the same period last year. In April, the company sold 174,800 commercial pigs, with an average selling price of 32.27 yuan/kg—down 22.61% and 2.3% month-on-month, respectively. Meanwhile, New Hope recorded April sales of 310,400 live pigs, up 15% month-on-month and 39% year-on-year. The average selling price for fattened pigs during the month was 32.88 yuan/kg, reflecting a slight increase of 0.3% compared to March.

Looking at the slaughter data from leading companies, several established listed pig farming enterprises—such as Wenshi and Muyuan—experienced significant year-on-year declines in their first-quarter hog shipments. Notably, Wenshi Shares saw its first-quarter hog shipments drop by more than [specific percentage or figure not provided in original text] compared to the same period last year. Contrary to the significant year-on-year decline in sales, companies saw a substantial increase in pig farming revenue during the first quarter. Meanwhile, in April, most enterprises reported a month-on-month rise in the volume of live pigs marketed.

The supply in the live pig market remains tight, which is one of the main reasons driving pork prices to remain high at this stage. Meanwhile, looking at the first-quarter results of publicly listed pig farming companies… Looking at April's sales performance, the average selling price of commercial fattening pigs from major pig companies generally remained above 32 yuan/kg. Yet, for many enterprises, the average profit per commercial pig fell short of 1,000 yuan, highlighting that hog farming costs have been rising sharply across the board. Factors such as increased mortality and culling costs, as well as widespread hikes in feed prices, cannot be overlooked—and these challenges are now serving as a key driver behind the sustained high levels of pork prices.

Data sources: National Bureau of Statistics, compiled by the China Business Industry Research Institute

In 2019, China slaughtered a total of 544 million pigs, a decrease of 150 million from the previous year. Meanwhile, pork production fell by 11.49 million tons, totaling 42.55 million tons. Market expectations widely suggest that China's pork output will continue to decline in 2020. Companies like New Hope have also predicted that domestic pork supplies in 2020 will remain tighter compared to last year.

Pig price analyst Feng Yonghui believes that, so far this year, the market prices for commercial pigs have remained at a relatively low level for most of the time. Pork prices, especially for fattened pigs priced at 30 yuan/kg or higher, largely reflect the current supply situation—indicating that market availability remains tight. The first half of 2019 saw a stark contrast: while pig farmers panicked and rushed to sell off their stock in response to the African swine fever outbreak, the second half brought a sharp shortage in supply, a trend that has continued into the present day.

From a monthly perspective, Feng Yonghui believes that due to the impact of African swine fever, pneumonia outbreaks, and the livestock cycle, pork supply levels will remain relatively low in the first three quarters of this year. While there will be a noticeable increase in the fourth quarter, this single quarter won’t be enough to boost the annual supply overall. As a result, the average annual price of pork this year is expected to rise compared to last year. 50%. Specifically, the second quarter will see the lowest pig prices of the year, as it falls during the off-season and coincides with the release of pigs held back from the first quarter. Meanwhile, hog shipments are expected to rise significantly in the fourth quarter; however, thanks to the peak consumption season, prices will still remain higher than in the second quarter.

"The ranking of pork prices across the four quarters of the year should be third, first, fourth, and second," predicted Feng Yonghui.

How much has the overseas pandemic impacted imported pork?

The outbreak of the pandemic overseas has also dealt a massive blow to the meat processing industry, as a large number of employees have been infected, severely impacting the U.S. meat-processing sector. Starting in April, a "wave of shutdowns" began. By early May, more than 20 large meat-processing plants under food companies like Tyson and JBS had temporarily closed, leading to an imbalance in U.S. meat supply and demand. As a result, hog slaughter volumes dropped by about 40% compared to the same period last year. Meanwhile, with processing facilities forced to shut down, many local hog herds couldn’t be sold or processed privately as planned. This has caused a sharp rise in stored meat inventories, driving hog prices plummeting. Consequently, numerous U.S. farmers have been resorting to euthanizing their pigs en masse to cut down on holding costs.

Looking at global pork exports, the United States and the European Union are the world's leading exporters of pork. In 2018, global pork exports reached nearly 8 million tons, with the United States and the European Union accounting for around 65% of the total. As one of the world's leading pork-exporting countries, could turmoil in the U.S. meat market eventually affect China's pork imports?

In the past two years, China's pork imports have primarily come from several European countries, as well as from South American nations like Brazil and Argentina. U.S. pork accounts for approximately 1/4. Following significant progress in U.S.-China trade talks last December, the two countries signed a pork supply agreement on January 15 this year. In response, China pledged to ramp up imports of U.S. pork and poultry. As a result, U.S. pork imports to China surged dramatically in the first quarter. During this period, China imported 168,000 tons of fresh pork from the U.S., along with approximately 280,000 tons of processed pork products—totaling about three times the volume imported during the same period in 2019. These imports accounted for one-third of the total U.S. pork and pork product exports shipped to China in the first quarter of this year.

China's share of imported pork has historically remained relatively low, typically used as reserve meat to ease pressure on market supply. On April 16, 10,000 tons of centrally stocked frozen pork were released into the market, marking the 15th batch of reserve meat distributed this year. By year-end, the total amount of pork released from reserves is expected to reach 300,000 tons—far surpassing last year's overall release volume. Notably, unlike in previous years, nearly all the central reserve frozen pork released since September 2019 has come from imported rather than domestic sources. Among this year's 15 batches, only the 20,000-ton shipment delivered on January 21 was made up of domestically produced pork.

It's clear that the impact of imported meat on domestic pork prices is continuing to grow. Recently, China and the U.S. signed an agreement worth over A 40,000-ton order for pork has provided much-needed relief to the U.S. pork industry. If executed smoothly, it will help ease the domestic pork shortage and stabilize pork prices in the market.

The outbreaks in the U.S. and Europe are creating some uncertainty for China's pork imports, but Europe’s import sources are spread across multiple countries—such as the U.S.’s Smithfield, Tyson, and Cargill. Large meat-processing companies like JBS operate numerous plants, and only a portion of them have been forced to shut down—plus, some of the affected facilities have already resumed operations. Overall, this means risks are well-distributed, so China’s pork imports are unlikely to be significantly impacted. In fact, the country’s total pork imports are set to rise this year.

Pig companies increasing production does not necessarily mean an increase in the number of pigs marketed for slaughter.

In 2019, major listed farming companies ramped up their expansion efforts, aggressively scaling up pig production while simultaneously stepping up their efforts to combat African swine fever and strengthen biosecurity measures. So far, most companies in the industry have significantly improved their disease-control capabilities, as evidenced by the noticeable increase in live pig shipments from January to April compared to the third and fourth quarters of last year.

Notably, however, the newly planned expansion scale of pig farming enterprises does not necessarily translate into actual output volumes. A significant number of these new projects—from planning and land acquisition to factory construction, livestock introduction, finishing processes, and finally marketable production—follow a timeline that cannot be skipped. Along the way, many may even face multiple setbacks before ultimately succeeding. As such, it will hardly be possible for China’s domestic hog output to return to normal levels overnight.

Deng Cheng, President of New Hope Six Harmony, believes that last year marked the first year when African swine fever significantly impacted the supply of pork. The substitution of over 6 million tons of imported pork, beef, and lamb, along with domestically produced poultry meat, has partially offset the shortfall in pork supply. However, this year, China’s domestic pig slaughter volume declined significantly compared to last year, while external market supplies were also disrupted by the severe outbreak of COVID-19. As a result, the increased substitution effect from poultry meat couldn’t fully close the gap left by the pork shortage. Overall, the market situation this year continues to be one marked by a persistent shortage of pork.

In response, Wang Shuhua, Vice President and CFO of New Hope Six Harmony, said the issue can be understood and assessed from two perspectives: one is supply capacity based on production capacity, and the other is from a consumer standpoint.

From the perspective of production capacity, she believes the figures remain relatively high, based on industry monitoring by the Ministry of Agriculture and Rural Affairs, which tracks monthly data on the number of breeding sows in stock. This is because there’s a fixed timeline—from pig mating to birth to entering the market—based on the published data. The number of breeding sows in each month of 2019 can very accurately predict the monthly slaughter figures for 2020, and when you look at it this way, the supply of live pigs this year remains severely tight.

Additionally, she mentioned that further consideration is needed regarding the stockpiled meat from slaughterhouses that have been slaughtered ahead of schedule. In 2019, particularly during the first half of the year—before hog inventories had yet hit their lowest point—slaughterhouses, sensing an upward price trend, ramped up production to full capacity while simultaneously maximizing their inventory levels. Meanwhile, many pigs suspected or confirmed to be infected with African swine fever were sent to slaughterhouses for processing, often in environments lacking strict oversight. However, by 2020, hog inventories had already plummeted to their lowest level. At that point, even though slaughterhouses were eager to increase production and build larger stockpiles, there simply weren’t enough pigs available on the market anymore. Moreover, today, regulations governing the handling of African swine fever-infected animals have become significantly stricter, leaving no room for clandestine culling. As a result, even as hog numbers slowly begin to recover, the overall supply of pork may not necessarily surpass last year’s levels.

From the perspective of consumer demand, "January to March and October to December represent two key periods each year, offering a clear picture of pork consumption trends—and allowing us to gauge just how large the gap is between demand and supply. According to Wang Shuhua, 'The primary reasons behind the significant supply-demand imbalance we projected for 2020 are twofold: first, the number of breeding sows available, and second, last year marked the initial year of the pandemic, during which many pigs were slaughtered ahead of schedule. As a result, overall supply this year is considerably lower compared to last year.'"

"Even though major pig farming companies announced plans last year to expand their production capacity, the number of pigs actually reaching market this year won’t be substantial. Pig growth and reproduction naturally follow a cyclical process. As a result, this year’s slaughter volume will see only gradual growth. Next year, however, we’re likely to witness a noticeable increase compared to this year, while a real surge in slaughter volumes probably won’t occur until the year after that—aligning perfectly with the three-year action plan previously released by the Ministry of Agriculture aimed at restoring hog production capacity," said Feng Yonghui.

The reporter learned that the industry-wide success rate in resuming production is slowly improving, with leading companies showing an even higher success rate in restarting operations. Around 50%, the industry as a whole still hasn’t surpassed this mark, and the risks posed by unavoidable external environmental pollution remain the key factor limiting the success rate of resuming pig farming operations.

"The level of biosecurity control has significantly improved across listed companies, with leading enterprises investing in and building new facilities equipped with cutting-edge hardware. However, African swine fever remains highly contagious, making it impossible to completely eliminate environmental contamination." Feng Yonghui told reporters that farms previously affected by ASF must carry out a comprehensive series of cleaning, disinfection, and preventive measures. While pigs can be reintroduced after one month without showing symptoms—marking the farm’s successful recovery—it often takes another two to three months before outbreaks resurface. Unfortunately, if the farm fails to maintain disease-free status even after six months, the recovery effort is considered a failure. Currently, this scenario accounts for roughly 60% to 70% of all pig farms resuming production. Meanwhile, smaller and medium-sized farmers face even greater challenges—they not only struggle to join the recovery process but also risk limited success if their facilities lack proper infrastructure or fail to implement robust biosecurity protocols."

Source: Caixin