News Pigs
China buys pork to fight deflation
The Chinese government bought pork again at the end of November to replenish state reserves. This is an attempt to relieve the pressure on the market. This results in lower pig prices, which in turn weighs heavily in the inflation basket. It is the third buyback round this year.
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The average pig price in China has been in a downward spiral since the end of August. At around 15 yuan per kilo, the pig price is almost 60% lower than a year ago. This is due to a combination of factors. First of all, the meat supply is oppressively wide. In the third quarter of 2023, China produced 12,69 million tons, an increase of almost 5% compared to the same period last year. By then production had already increased significantly. In recent decades, the volume produced has never been as high as it is now.
The increasing meat production is a result of the growing pig herd, which increased by 7 million last quarter to more than 442 million compared to a year earlier, according to the government's own statistics.
Faltering economy
The demand side of the pork market is negatively affected by the disappointing economy in China. Analysts say that more than half of Chinese people will immediately notice the consequences of this in lower purchasing power. According to the World Bank, China is facing its lowest economic growth in fifty years. At the beginning of this month it was announced that the faltering economy had once again led to mild deflation. This despite a robust government program to support the purchasing power of Chinese.
Consumer prices for food, tobacco and alcohol showed the biggest declines last month, with pork becoming as much as 30% cheaper, according to the statistics agency. Pork is the largest meat category in China and therefore weighs heavily in the inflation basket. By purchasing pork, the Chinese government is trying to boost pork prices. Earlier this year there were also two purchasing rounds, in July this involved 20.000 tons. Moreover, the necessary volumes from state reserves have again been offered in recent months, probably to prevent state stocks from becoming too high.
Chinese New Year
The announcement of the latest round of purchases seems strategically well timed as the market prepares for the Chinese New Year, which takes place on Saturday, February 10, 2024. Traditionally, a lot of pork is consumed around this holiday and the market often picks up. However, expectations for the Chinese pork price are certainly not high at the moment.