Interview Pigs
'Recovery of pig prices in China in the second half of the year'
Developments in the Chinese pig sector have followed each other in rapid succession in recent years. After the disastrous outbreak of African swine fever (ASF) in mid-2018 and the subsequent decline in the pig herd, recovery followed in the past 2 years. However, current reports are contradictory. Time for a conversation with local people: Gert-Jan Gerrits from Agrifirm and Jan Cortenbach from De Heus.
This spring, several media reported a high number of new outbreaks in northern China. In some provinces, 30% to 40% of the pig population is said to have disappeared. Partly because of death, partly because of fear of an ASF outbreak that caused farmers to slaughter animals as a precaution. While these developments may suggest that a further contraction in the supply of pigs is imminent, prices have recently fallen rapidly due to a large supply of heavy pigs.
The government figures also still show a growth in the pig population. Reports about a significant series of new outbreaks and a decline in animal numbers are therefore quickly followed by news about a large supply. How do these messages fit together? To put things in perspective better... Boerenbusiness in conversation with Gert-Jan Gerrits, technical director of Agrifirm China, and Jan Cortenbach, CTO of De Heus.
Both have been active in China for many years and know the pig sector in the country from oats to barley. They believe that the current ample supply is only partly caused by a structurally growing pig population. They characterize part of the current wide range as temporary. Price recovery is in line with expectations.
Up until March, there were continuous reports of a growing number of pigs in China. After that there was a phase where the number of ASF outbreaks picked up and now we see a sharp drop in pig prices due to an ample supply. Moreover, the stories go that considerably more pig feed is also being produced. How should we interpret all these developments?
Gerrits: "In the spring there was indeed a revival in the number of outbreaks of African swine fever. However, it is difficult to estimate exactly on what scale and how many pigs have died as a result. However, we do have the idea that the pig herd is indeed in a , slowly increasing trend, is recovering, as the Chinese government also shows in its figures. The outbreaks this spring have slowed this down somewhat. We see an increase in feed production, but this is probably not fully explained by a growth in the number of animals."
Gerrits continues: "First of all, very heavy pigs are being slaughtered at the moment. At the last figures I saw, the slaughtered weight was around 135 kilos, a few weeks ago this was even 160 to 180 kilos here and there. These pigs eat relatively a lot of feed, which can explain the growth in production.In addition, a lot of female fattening pigs have been set up as breeding sows.These animals also eat a considerable amount of feed to go from a ready-to-slaughter pig (120 kg) to the weight of a breeding-ready gel (in China around 160 kilos). This category also eats extra feed as a pregnant sow. Obviously, these pigs are less efficient, so less production with the same amount of feed. So yes: there is growth now, how strong it is exactly, is difficult to estimate."
Cortenbach: "We are also dealing with conflicting reports here. On the one hand, the government points to the sharply increased animal numbers and, in support of these figures, cites the sharply increased imports of maize and soya. On the other hand, I also hear in my network about regions where the pig herd would have been significantly reduced by this spring. Moreover, the increasing feed consumption is a story that needs further explanation. In recent years, pig farmers in China have started to deliver more and more animals. This was stimulated by the extremely high prices. Slightly lowered again, but are still at a high level."
Another factor is the limited availability of piglets, continues Cortenbach. "In order not to have to leave the stables empty, pig farmers keep their animals ready for slaughter for longer. These heavy pigs have a high feed consumption. Many pig farmers have also used fattening pigs as breeding material. These sows are less productive, but of course eat at least as much. that is, there is feed consumption, but the output will be relatively lower. So it is very difficult to interpret to what extent the increasing feed production leads to a higher pork production. In addition, I also hear other voices from my network that do not indicate a growth of the pig herd. There are regular reports of new variants of African swine fever. Farmers still quickly sell the livestock when symptoms show up to at least monetize it, also because the compensation from the government is too low. In some provinces up to 30% of the pig herd may have disappeared because they have actually been ill or because of that farmers sold their pigs out of fear. We are also still dealing with the economic market conditions. China has imported an enormous amount of pork in the past 6 months, which has contributed to the pressure on prices. In addition, the feed costs are sky-high. This was the reason for a group of pig farmers to stop producing pigs. This also (temporarily) causes an increasing supply. The recovery of the pig population has therefore been interrupted in recent months."
How do you view the current Chinese approach to African swine fever?
Gerrits: "In my view, we should especially look at the approach that entrepreneurs themselves introduce at company level. Awareness about biosecurity has grown enormously. At large companies, very strict procedures apply before you can enter the location. Recently I was on a farm where you first had to quarantine on location for 2 days. Then you also had to shower several times between the different compartments when entering the complex between the different compartments. However, also on small farms (1000+ sows) the biosecurity is getting better at In addition, a lot of work is also being done on the disinfection of means of transport. For example, more and more companies have a special unit in which trucks are steamed for half an hour at 70 degrees before entering the company.There are of course still outbreaks of ASF , but the whole awareness of biosecurity has had a major effect in keeping the AVP situation at the major locations. In general, companies spend a lot of money and attention on biosecurity, disinfecting/steaming of companies and means of transport, virus filters for incoming air, pest control, etc."
Cortenbach: "My impression is that the Chinese government acted quickly at the beginning of the ASF crisis, but that precisely those measures had the opposite effect. In the beginning, the virus jumped hundreds of kilometers to new places. That happens. not by swine but by human action. So what the government did is cut off provinces from each other. So no transport of pigs and pork between provincial borders. However, there are imbalances between more producing and more consuming regions. So you got areas with sky-high prices and areas with very low prices. This policy resulted in much illegal smuggling of pork and thus the spread of ASF. Subsequently, larger regions have been created where production and consumption are more balanced, but it remains very difficult for the government to to implement a comprehensive prevention policy.In addition, there is no good registration system for diseases and the benefits for farmers affected are too low. They prefer to sell their infected animals. As a result, not all cases are shown. It is simply very important for individual pig farms to have good control of biosecurity."
What type of companies are they now expanding production significantly?Gerrits: "We see growth that is fairly broadly based. The motor behind the growth is the large pig producers. Money is flowing into the sector from investors/investors. Large parties that previously invested in real estate, for example, see an attractive return perspective and are helping to build large high-tech These parties are therefore attracted by the attractive short-term return perspective, but they do invest in large locations that remain in production for the long term. Also the 'small' family farms, with 500 to 5000 sows, which are the technical results, costs and have good hygiene, can certainly still earn money and continue to invest in pig farming, even if they have been infected.The real backyard farms and very small companies give up production for various reasons. prices that make it impossible for them to operate profitably, additional costs such as: due to environmental measures that they cannot comply with or when there is no money to restart after an ASF infection. There will therefore certainly be a further shift in which more backyard farms are giving up production and at the same time large parties are investing further in pig locations."
Cortenbach: "The growth comes mainly from large parties that are actually attracted via 2 different tracks. On the one hand, we have parties with money and investors who are simply lured by the return perspective. They invest in large locations that are well equipped. Even for the current At prices of around €2,10, these companies can produce with a return, and in some regions, these parties are also encouraged to develop with government subsidies.The Chinese administrators seem to see the benefit of major integrations in the area of food safety control. A company with its own feed factory, its own pigs and its own slaughterhouse offers advantages compared to a system with all kinds of different links."
The prices for pork seem to continue to fall due to a large supply. What is your expectation for further development this year? Could traditionally strengthened demand in the autumn possibly absorb the decline?
Gerrits: "I personally think so. Due to a number of factors, we have seen that the supply is somewhat larger, but that this is not entirely the result of a structurally increasing production. It is therefore realistic to assume that prices will rise again in the near future. The reasons for the current price dip are various: After the recent ASF outbreaks in certain pig-rich regions this spring, pigs were slaughtered as a precaution to stay ahead of ASF, and many companies have let the pigs gain weight to speculate on higher pig prices. pigs have been coming onto the market in the last few weeks, because it no longer pays to keep these pigs any longer, especially given the high feed prices.The cost is now around 18RMB/kg (€2,31), and the selling price is around 16 RMB/kg (€2,06) In addition, record volumes were imported in the months of March and April, and demand is traditionally somewhat weak at this time of the year, expected to reach the end of the year. put on again."
Cortenbach: 'What I hear from my network, and also mentioned just now, is that the AVP problems have not yet been completely resolved. I think a combination of high imports and a temporary increase in supply as a result of farmers selling their livestock has caused the current price dip. However, since the low point in 2019 until the beginning of this year, the pig herd has also grown again. All in all, this now means a wider range of products. However, part of the supply is therefore 'temporary' because a group of pig farmers has stopped their business and offered all the animals for slaughter. Structural growth has come to a halt in recent months. If the current 'temporary' supply has been absorbed, I expect that we will experience a price recovery in 1 to 2 months. Prices now fluctuate (depending on the region) around €2,10 live weight and I think we will see prices of around €3,00 again in the second half of the year.'
How is pork consumption developing in China?
Gerrits: 'This is an important factor to take into account for price formation in China and the size of the total export market in the future. Pork consumption in China will not return to pre-ASF levels. In my view this has several reasons. First of all, there is clearly a trend among the young generation, especially in the large cities, to consume less (pork) meat. In the perception of young people, eating less meat is seen as a sign of a healthy lifestyle. Meat is replaced by vegetable or fish alternatives. Vegan shops and restaurants are popping up like mushrooms in big cities like here in Shanghai. There is also the trend in population development. There will also be an aging population in China. In 1979 a 1 child policy was introduced. China now has 1,4 billion inhabitants, but this number will decrease. The number of inhabitants will possibly shrink by about 15% to a total of 1,2 billion people in 2040. Of course, fewer people also means less consumption.'
Cortenbach: 'The consumption pattern in China is changing. The longer it takes before sufficient pork is available again, the more consumption will lag behind pre-AVP levels. Younger generations in particular are now trying other types of meat such as chicken and beef or trying vegetarian alternatives. That is why I also think that pork consumption will not return to the old levels'.
Is China disappearing as an export destination for European pork?
Gerrits: 'No, I certainly don't expect that. China has no interest in producing more pork than it needs. Chinese pork is not worthy of export due to a number of standard vaccinations administered here (for example classical swine fever/foot and mouth disease). The Chinese government therefore strives for a self-sufficiency level of between 95% and 98%. This means that a part will always be filled with imports from Europe or other competitive markets. In that case, space remains mainly for the parts that are now familiar that are less popular elsewhere in the world, such as heads, legs and tails.'
Cortenbach: 'No, I certainly don't think so. Production will recover and China wants to be largely self-sufficient. But the demand for the parts that we do not consume in Europe will remain. Moreover, 'almost' self-sufficient still means a considerable volume of imports. However, as a pig farmer in the Netherlands, you should not invest on the Chinese demand. It is a market that will remain important for square footage in the long run, but the real hype as it is now will disappear.'
Steve Wissink
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