Inside Pigs
China's futures market pig price suddenly shoots up
Two facts caused the Chinese futures market for pigs to bounce back sharply this Monday (October 11). Contracts of several delivery months recorded the maximum possible daily profit of 8%. This is how the market reacts to news released by the Chinese government. Short-term (November) supply contracts also skyrocketed. What is going on?
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Prices for almost all delivery months recorded significant increases. Even the fastest-expiring contract for November delivery flew from 11,58 Chinese renminbi (RMB) at opening to over 12,50 RMB by the end of the day, an increase of almost 8%. Prices also increased sharply for delivery at the end of next year. News about the Chinese sow herd and information about a new amount of pork purchased by the Chinese government are supporting the market.
Shrinking number of pigs
The Chinese Ministry of Agriculture announced that after a decline in the number of sows in July, the sow herd also shrank in August. While the number of sows already fell by 0,5% in July, a further 0,9% fewer sows were counted in August. Chinese pig farmers are faced with high costs and low returns for their animals. They are therefore rejecting more and more pigs (including sows) to limit losses.
More and more market parties are wondering what impact this will have on the supply of pigs in 2022. The American Department of Agriculture (USDA) recently expressed the expectation that the Chinese pig production will shrink considerably in 2022. The contract for delivery in September 2022 now stands at 17,66 RMB, equivalent to almost €2,40 per kilo of live weight. That is more than 40% higher than the contract for delivery in November 2021.
The government is once again taking a significant volume from the market
In addition, a government official announced that it has bought another 30.000 tons of pork from the market to add to national state reserves. According to this official, a number of regions intend to continue purchasing pork in the fourth quarter. Since the end of September, prices have not fallen or even increased slightly in many regions. Analysts assume that recent market interventions by governments have contributed to stabilizing pig prices.
Although the contraction in production is not nearly as strong as during the first wave of African swine fever outbreaks, a slightly declining Chinese pork production, due to the enormous size of the market, can provide some breathing space for the European export market in the long term.