Yesterday, hog prices fell another 1 cents.
Of course, after falling this far, 1 cents is hardly news. But there was a change today worth mentioning: prices turned positive in a few provinces.
But don’t get excited. As mentioned yesterday, the rise was largely weather-related, not driven by demand, so it’s best to take it in stride; it is unlikely to make much of a splash.
The supply pressure in the hog market has not changed at all.
First, planned hog shipments remain unchanged.
Some may have noticed that companies’ hog shipments seem to have tightened over the past couple of days, but this is most likely still weather-related—a brief respite. Overall shipment plans have not changed.
In other words, there are still just as many hogs—not a single one fewer.
Second, the average weight of pigs sold is still increasing.
What does this mean?
It means that the large pigs held back earlier have finally given up resisting and have also joined the wave of heavy discounting. This also explains why the more pigs are sold, the heavier they are, and the more prices fall.
Just how many large pigs are there?
The answer is that we don’t know. Just like the production capacity, it remains a mystery.
Third, frozen pork stocks are high.
They seem to have fallen a little over the past couple of days, but that tiny drop won’t make much difference. Like the live hogs ready for slaughter, all these frozen pork stocks will eventually be dumped onto the consumer market.
But can market demand absorb this many pigs?
I’m sure everyone knows this perfectly well.
That’s why pig prices have kept falling, again and again.
But this isn’t the most troublesome thing. There’s something even more troublesome—what is it?
It’s that the market is once again collectively anticipating a profit turnaround next year.
Oh my goodness!
The market now generally believes that capacity has fallen into the green zone, at a normal level of capacity retention. Based on capacity and the number of hogs shipped, hog prices are expected to return to the profitable range by the second quarter of next year.
To be honest, I think this expectation is very dangerous. Why?
Because once this expectation takes hold, a series of actions will follow on the production side.
For example, the first move is to hold on.
Holding on doesn’t mean holding up prices, but rather preserving as much of the capacity on hand as possible. Since the outlook is that things will turn around next year, who would want to fall in the darkness just before dawn?
For pig farming companies, that means reducing and replenishing at the same time: culling low-productivity sows while bringing in high-productivity sows, so the total breeding stock actually increases.
The second move: bargain hunters have arrived.
Although hog prices are currently so low that they seem to have lost their bearings, and market sentiment is overwhelmingly pessimistic, as long as expectations remain, buyers will definitely step in to buy the dip once hog prices start to rise.
The logic is also simple: since a reversal is expected next year, the current market is basically at the bottom.
The third move is to blow bubbles.
By “blowing bubbles,” we mean building up the atmosphere and boosting morale.
Of course, the hog market does need a boost right now, but it matters how that boost is given. Mindlessly indoctrinating people into believing that the market will turn around next year is not a wise move.
And the danger of blowing bubbles is that it can make people believe blindly, causing their actions to become increasingly distorted.
And what is the reality?
The reality is that there are far more pigs than usual, and production capacity is also far beyond what we imagine.
On the one hand, this is due to statistical errors. On the other hand, as we mentioned earlier, the increase in psy has already exceeded production capacity. So, although production capacity appears to have been reduced, the actual number of pigs in stock has increased.
The market consumes pork, not production capacity data, so in the market, that comes down to 5 words: more pigs, even more pork.
Moreover, the data has already confirmed this.
In the first three quarters, approximately 5.4 hundred million pigs were slaughtered nationwide. In 9, slaughter volumes at nationally designated slaughtering enterprises continued to grow both year over year and month over month, reaching their highest level in nearly 8 months. In 10, the sample enterprises slaughtered an average of 32.6 ten thousand pigs per day, an increase of 6.8% from 9.
The number of sows has kept falling, while the number of pigs sent to slaughter has kept rising. This is the truth behind “fewer sows, but no less pork.”
So the number of live pigs has long since exceeded what anyone could have imagined. If we keep applying the old logic to today’s market, the only result will be dashed hopes.
The more people expect a reversal, the more of those who should exit do not, and those who should cut back do not. Some even step in to buy the dip, so supply is slow to fall, and the reversal is postponed indefinitely...
A reversal requires capacity to be cleared, but the expectation of a reversal itself is preventing capacity from being cleared.
And history has already played out once before.
In 4 this year, pig prices fell to 4.35 yuan per jin, and the market was also full of people saying, "This must be the bottom." 7 months later, pig prices have now fallen even lower than that previous bottom.
Meanwhile, hog production capacity kept falling, dropping all the way to 3602 ten thousand head. But what about hog prices? They fell even more sharply.
In the fourth quarter of last year, the market also expected a turnaround in the second half of this year. What happened?
Not only did it fail to turn around, it fell even further.
Current hog prices have fallen to a low not seen in nearly 10 years, driven by repeated reversals in expectations.
So, just focus on chopping wood, and take good care of the pigs you have on hand.