China wants to slow the rise of pork prices

Pork is an important part of the menu for the average Chinese consumer. The fact that pork prices were recently well below last year's level also significantly slowed inflation in China. Inflation in China remains within limits for the time being and stood at 2,1% in May. Not including pork, inflation amounted to 2,4%.

Pig price 30% higher than last year
Now that pig prices are rising rapidly, and are now about 30% above last year's level, there is a risk that inflation in China will also rise above 3%. That is above the level that the Chinese government has in mind. That's why an economic planner from the Chinese government announced this week that it is considering putting pork on the market and putting a stop to the rapid price increase. Policy makers in the country see curbing inflation in the Chinese consumer price index as very important. Pressure on the purchasing power of the population can cause social unrest and dissatisfaction with government policy.

According to market analysts, the rapid rise in pork prices in the country has several causes. First of all, the supply of pigs seems to be getting smaller. During the price crisis that started last year, pig farmers reduced their pig herd. This smaller supply is coming onto the market now that the strict corona measures also appear to be slowly being relaxed in China. Restaurants and retail are reopening, which has increased the demand for pork.

Limited space upwards in the longer term?
The rising market sentiment is also clearly reflected in the quotes on the Chinese pig futures market. For months the mood was stable at a low level. However, recently the contracts for the delivery month of September, for example, have increased considerably. The quotation for September now stands at around €3,30 per kilo. At the beginning of April, the contract still fluctuated around €2,50 per kilo.

The Chinese government suspects that part of the price increase is also due to speculation on the futures market. It therefore also hopes that the announcement that the government is prepared to suppress pig prices by putting state stocks on the market will deter speculators. Analysts see it as a good tool to moderate inflation, but indicate that if supply on the market really tightens, the government will not be able to stop an upward trend. 

Moreover, delivery contracts for later this year and early next year are at a lower level than the September contract. Insiders may not see much room for a further climb in prices. The investment urge of the big ones listed pig producers could be a cause of this. These concerns appear to be further expanding production even when pig prices are low.