Breeding sow inventories have fallen below the normal reserve level, so why are hog prices still bottoming out at low levels?

On 10 20, the national average price for market hogs leaving farms fell to 9.70 yuan/kg, down 13.32% year over year and at a low for the year. At the same time, the latest official data showed that at the end of 9, the national breeding sow inventory had fallen to 3602 ten thousand head, down 4.71% quarter over quarter, a decrease of 178 ten thousand head in one quarter. This is the first time during the current hog cycle that breeding sow inventories have fallen below the normal reserve level of 3750 ten thousand head.

3602 ten thousand head, about 4% below the normal reserve level, placing it at the lower end of the green zone for capacity regulation. This means that, judging by inventory alone, an advance signal from the supply side has already changed. But it takes time for a decline in inventory to translate into fewer hogs shipped to market: the capacity reduction in the third quarter will not gradually be reflected in the market until the second and third quarters of 2027. The hogs currently being shipped are still drawing on the capacity built up when inventories were high. This is the underlying reason why inventories have fallen while hog prices remain low.

Official data covering the full population and sample monitoring data point in the same direction, but the scale of the change differs. In the Steel Union sample, breeding sow inventories at 123 companies fell 0.86% month over month in 9, indicating a relatively gradual pace of reductions; the quarter-over-quarter decline in the official full-population data was 4.71%. The difference between the two rates may indicate that reductions among small and medium-sized independent producers not fully covered by the sample have been relatively faster.

This largely aligns with the current market environment. The industry has been in overall losses since the third quarter. For the week of 10 month 16, the loss per head for self-bred and self-raised hogs was 216.21 yuan, reaching 248.87 yuan per head on a daily basis; the average piglet price fell to 99.52 yuan per head, dropping below one hundred yuan. Against a backdrop of continued declines in hog prices and losses deepening month by month, small and medium-sized producers face considerable funding pressure and are relatively more willing to exit than large-scale enterprises. “Falling prices → losses → smallholders exit → large-scale farms hold on” is probably a rough outline of the pace of this round of capacity reduction.

At the same time as the breeding sow inventory is declining, production efficiency is also improving. In recent years, the industry’s PSY has continued to rise, and sow productivity has improved, partly offsetting the supply contraction caused by the decline in inventory. Market hog weights have remained broadly stable. In mid-10 month, the average weight of market hogs from sampled companies was 124.32 kilograms, so weights have not created additional pressure for supply adjustments.

On the demand side, there is limited scope for short-term improvement. In mid-10 month, the operating rate of sampled slaughtering companies remained around 34%, terminal sales of fresh products were subdued, and although the frozen product inventory utilization rate had fallen, it remained relatively high. Before pre-holiday stocking demand picks up ahead of the Spring Festival, consumer demand is unlikely to provide effective support.

Overall, the fact that the breeding sow inventory fell below the normal holding level in the third quarter signals that capacity reduction has entered a deeper phase, but it will take time for this to translate into an effective contraction in supply. In the short term, hog prices remain in a bottoming phase. The peak season for preserved meat in the fourth quarter may provide temporary support, but a sustained recovery may not come until the first half of 2027年. Going forward, the key factors to monitor are whether capacity reduction can continue and whether the trend of small-scale farmers exiting the market will prompt large-scale enterprises to adjust their restocking pace—these are key variables in assessing the direction of hog prices in the next cycle.