The Chinese government wants to reduce the size of the sow herd. This is an attempt to get the low pig prices out of a slump. China has been struggling with oversupply for some time and the country wants to bring production back in line with demand with new legislation. Meanwhile, major Chinese meat groups such as New Hope Group express their confidence in market recovery. European exporters are also sometimes more optimistic.
The Chinese pig market has been in the doldrums for about two and a half years. The average pig price in China has been trading around 15 yuan per kilo for a few months now. Too low for producers to be able to make decent returns. The cause is simple, the market is struggling with an oversupply of pork. Despite various purchasing rounds of the Chinese government for its own state reserves, pig prices remained at a low level in the past period.
New legislation must turn the tide, which - coincidentally or not - was published last Monday simultaneously with the Chinese People's Congress. The law states that China wants to better control the size of the pig herd. The aim is to monitor the market balance, which means preventing both oversupply and shortages in the future. A specific goal is to reduce the sow herd from 41 to 39 million. Analysts in China have already calculated that this will reduce output by around 22 million fattening pigs. According to them, this will also have consequences for China's import needs for feed grains. With the new legislation, China implicitly acknowledges that there is overproduction.
New Hope Group a bit more optimistic
Liu Yonghau, chairman of New Hope Group (China's largest pork integration company), is more optimistic about the pork market and thinks prices could pick up. He attributes the price pressure that has arisen to the expansion drive of large meat companies. According to him, they preferred market share and growth over making a profit. This has created an oversupply. "After three years of persistently low prices, the chance of a market recovery is greater than the current situation continuing," Yonghau told Chinese journalists, who, like him, are present at the people's congress.
In addition to the smaller sow herd, he thinks that the improving Chinese economy contributes to higher pork consumption. China estimates economic growth this year at 5%, although this growth rate is being questioned by economists in the Western world.
European export figures down
European pork exporters may eventually have the prospect of better export opportunities by reducing the sow herd. In recent years, the demand for pork and by-products has dropped considerably, but cautiously there is more optimism to be seen. Exporters indicate that demand was weak partly because China kept larger meat stocks due to corona. Now that the pandemic has been over for a while, these inventory targets are likely to disappear as well. As a result, exporters may once again see increasing sales to the Asian country.
In 2023, European pork exports to China (including by-products) were the lowest since 2015. At 1.189 million tonnes, exports were 25% lower than a year earlier. The difference with previous years is even greater. Dutch slaughterhouses sold 220.239 tons to China last year. With a decline of 16%, they did slightly better than the European average.