As 10 enters its latter part, official information on hog production capacity was recently released in China’s domestic hog market. Regarding the sow inventory, by the end of the third quarter, the domestic sow inventory had fallen to 3602 ten thousand head, down 10.7% year on year. The sow inventory has already fallen below the normal holding level of 3750 ten thousand head, marking substantial progress in reducing production capacity!
However, looking at the supply and demand balance in the hog market, the current market continues to show a pattern of “fewer sows but no less pork.” In the first half of the year, hog slaughter increased year on year, and pork production capacity rose further! Moreover, the release of hog supply driven by existing momentum has not yet ended. With rising hog slaughter weights and large domestic inventories of frozen pork exerting pressure from multiple directions, the seasonal turning point toward higher hog prices is proving difficult to realize. The hog market is showing a downward trend as it “grinds along the bottom”!
As of 10/21, the national average price for slaughtered standard lean hogs of the three-way crossbreed was 9.73 yuan per kilogram, down 0.08 yuan from the previous day. Hog prices have “collapsed,” breaking below key levels. The average hog price has already fallen below the monthly low of 9.79 yuan per kilogram, reaching a new low since the second half of the year began. The market continues to show a pattern of a peak season failing to bring strong demand. Compared with the beginning of last month, hog prices have fallen by a cumulative 12.26%!
Specifically, in the national live hog market, across the 28 sampled provinces and municipalities monitored in northern and southern China, the average ex-farm price of live hogs was close to that in Jiangxi (9.75 yuan/kg). The widespread downward trend in live hog markets across the north and south continued, with quotations fluctuating between 8.9 and 11.2 yuan/kg. In particular, prices in many parts of East China also successively fell below 10 yuan/kg, and mainstream live hog quotations retreated to around 9.4 to 10.1 yuan/kg. The market was mired in a “quagmire,” with hog prices facing a pattern of “relentless declines”!
In my view, the main reason hog prices are falling is that the increase in supply is outpacing demand growth. With both supply and demand rising, demand is insufficient to absorb supply, leaving a fundamental mismatch between production and sales in the market!
On the supply side, although the sharp reduction in the breeding sow inventory is positive for the hog price outlook 10 months later, current commercial hog shipments reflect changes in the breeding sow inventory 10 months earlier! It is reported that the breeding sow inventory at the end of last year stood at 3961 ten thousand head. In addition, improved sow productivity has offset the impact of the reduction, intensifying the pressure from a temporary supply surplus! In particular, demand was weak earlier, and the pace of shipments from farms was slow. Meanwhile, as the weather continued to cool, fattening hogs gained weight faster, increasing the supply of market-ready commercial hogs. Average shipment weight also continued to rise, further reinforcing the fundamentals of oversupply!
On the demand side, after the National Day holiday, demand continued to weaken, and the operating rate of slaughterhouses retreated to around 30%. However, as the weather gradually turns cooler, seasonal demand is slowly recovering. Pork buying and selling at rural markets in the domestic market have improved, but the increase in urban demand has been limited, and the operating rate of slaughterhouses has risen only slightly. Demand is insufficient to absorb the available hogs. Moreover, due to prolonged losses in the farming sector and an outlook for excess pork supply, mainstream operators in the second-round fattening market are cautious about entering, further dampening expectations for price increases!
As a result, amid changes in supply and demand, hog prices are currently under downward pressure. The average price of standard hogs has fallen to 9.73 yuan/kg, and the market is seeing a decisive break to the downside! Moreover, market sentiment is predominantly bearish or neutral. In the short term, hog prices may continue to seek a bottom! Key factors to watch are changes in the pace of downstream pork buying and selling, as well as changes in the pace of sales by large-scale hog producers. In theory, at the end of 10 month, hog prices may continue to fluctuate lower, and a price increase may be difficult to materialize!