Worries about a domestic pork glut have sent hog futures prices on the Dalian Commodity Exchange plummeting. Since their launch in January, hog futures contracts - a way for investors to bet on the future movement of pork - have now fallen more than 30%.
According to Financial Terms, the move is in contrast to what happened in China - the world's largest producer, consumer and importer of pork - for much of the past two years, when African swine fever reduced the country's pork supply and sent prices soaring.
During that time, Chinese authorities encouraged farmers to increase pig production and to replenish the national pork reserves as quickly as possible. These measures appear to have had an over-the-top effect.
Analysts say the decline in pork prices in China has been accelerated by farmers' fear that pigs would lose value the longer they were left, so they are selling them off. To make matters worse, many farmers have been fattening up giant pigs weighing up to 300-400 kg, as big as polar bears, instead of the usual 100-200 kg, according to Chinese media.
On Tuesday, live hog futures on the Tailian Commodity Exchange fell as much as 7.1% to 18,550 yuan ($2,900) a tonne, after news that even smaller pigs were being sold, further increasing supply.
Wholesale pork prices in China have fallen about 50% so far this year to 23.57 yuan per kilogram, the lowest since late 2019.
“It’s surprising how fast and how deep the price has fallen,” said Darin Frieddrichs, an analyst at Shanghai-based commodities brokerage StoneX Group.
China has struggled to stabilize pork prices since African swine fever began ravaging its hog herd in 2018.
Analysts say the drop in Chinese pork futures this week was a response to a report from Beijing’s Xinfadi market, the city’s largest wholesale pig market, which said on Friday that smaller pigs were also being sold by farmers. The report said this “is a sign that some large farms have sharply reduced their expectations for future pork prices and are therefore selling their pigs ahead of schedule.”
The latest price moves prompted China’s National Development and Reform Commission (NDRC) to issue a statement last week pledging to “ensure supply and stabilize prices in the pork market,” without elaborating on what those measures would be.
Pork prices are a key component of China’s consumer price index (CPI), which has been a major driver of the index over the past year. A plunge in pork prices late last year pushed inflation into negative territory for the first time in more than a decade.
Chinese policymakers had hoped that the introduction of the Dalian futures contract would help ease the country’s cycles of sharp spikes and sharp declines in pork prices. “But pork prices are still falling, so the fluctuations will continue,” Mr Friedrichs said.
The drop in pork prices has left many farmers in dire straits.
Li Yunlong, a pig farmer, told the Chinese newspaper Global Times that the price of pigs sold at slaughter has dropped dramatically while the cost of raising pigs has increased.
“Compared to the beginning of the year, the price of animal feed has increased by 30%, while the price of pigs has decreased by 60%,” Li lamented. “I lose about 800 yuan ($124) per pig sold at slaughter, but if I continue to raise pigs, I will lose even more.”
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