By Dominique Patton
BEIJING, March 25 (Reuters) – Chinese pig farmers, who are suffering record losses due to soaring feed costs and weak demand for pigs, are turning to lower quality grains made from pig meal. more expensive soybeans and are even selling off assets in an effort to survive.
However, the pain in the world’s biggest pork market could last into next year, analysts said, squeezing incomes in China’s rural economy and likely curtailing imports of soybeans and meat from the first. global buyer for a second year.
The slowdown follows a period of huge profits for many farmers, after the African swine fever virus devastated the herd three years ago, reducing pork production and sending prices skyrocketing.
But after quickly rebuilding the herd, producers found that demand for meat had declined due to repeated COVID-19 outbreaks that shuttered restaurants.
Now, after already suffering months of losses, farmers are facing soaring costs as already high grain prices soar following Russia’s invasion of Ukraine.
According to consultancy Shanghai JC Intelligence Co Ltd (JCI), the average loss of 480 yuan ($75.42) on each pig slaughtered earlier this week was the worst on record. Analysts say the losses are widespread, from large companies to small operators.
Selling prices for pork are currently averaging around 12 yuan a kilo, half of what they were a year ago, but costs at most major producers are still above 16 yuan.
“There are not many options. If you don’t have money, then you stop. If you still have money, you continue and wait for an opportunity,” said farmer Wu Zhanhang. of Henan province which has several thousand pigs.
With feed accounting for two-thirds of the cost of raising pigs, the industry is cutting back on protein-rich soybean meal and replacing the highest quality corn with cheaper and often lower quality substitutes.
“On some farms the pigs are barely growing. This is maintenance feed,” said Jan Cortenbach, technical director of Wellhope-DeHeus, a joint venture between one of the world’s largest feed manufacturers. for animals from China and a Dutch company.
Soybean meal futures rose 15% this month to a record 4,428 yuan a ton on smaller-than-expected shipments of oilseeds from Brazil’s main supplier. Spot prices of widely used animal feed protein are over 5,000 yuan. Corn is also at mind-boggling levels.
“Our nutrition division works on the best recipes with as little soy and corn flour as possible. We buy rice, rice bran, coconut flour, sunflower flour, broken rice, pretty much anything cheaper and available,” said a manager at a pig farm. with nearly 100,000 sows in southern China.
Although the company has about six months worth of soybean meal in stock, it uses as little as possible to sustain supplies, she added.
While Beijing has urged farmers to get rid of some of their breeding sows, the herd of 42.9 million is still 5% larger than needed, government data shows, indicating an “abundant” supply this year, said Rosa Wang, analyst at JCI.
Although small farmers are likely to sell their herds after sustained losses, large producers are less flexible. After a major expansion over the past two years, the major producers have a much larger market share that they don’t want to give up.
Guangdong Wens Foodstuff continues to expand its herd, while New Hope Liuhe expects a “significant increase” in production after improving the efficiency of its farms, a company representative said earlier this year.
Still, some have been forced to sell assets to raise cash, while local government companies are supporting No. 2 rancher Jiangxi Zhengbang.
The government, wary of any shortage of meat caused by a potential exodus of pig farmers due to huge losses, has called on banks to offer more credit.
With COVID-19 at its worst level in two years, weak consumption will continue to pressure prices, said Pan Chenjun, senior analyst at Rabobank. Wens believes that prices, at best, could start to recover in the fourth quarter.
But many expect profits not to return until 2023.
“The negative margin could last longer than the all-time high as demand is not normal,” Rabobank’s Pan said. ($1 = 6.3644 Chinese yuan renminbi)
(Reporting by Dominique Patton; Additional reporting by Hallie Gu; Editing by Muralikumar Anantharaman)
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