Muyuan Foods, China’s largest pig farmer by market value, expects hog prices to fall over the next two to three years, as the industry’s output recovers from a sweeping epidemic that decimated the country’s herd by 40 per cent at one point.
The African swine fever, harmless to humans but fatal to pigs, spread to China in late 2018 and propelled a national crisis as the price of pork surged fourfold to a historical high of 41 yuan per kg through November last year. The price of the most important meat source in the Chinese diet retreated since the Lunar New Year to 28 yuan last week amid rising local output, imports and new entrants.
“Now pig farming is a freely competitive market, which means when pork prices are high, more people enter and supply increases,” said Qin Yinglin, chairman of Muyuan Foods based in central China’s Henan province. “Under this situation, the big trend over the next two to three years is that prices will move from high to low.”
Despite the anticipated decline, pork prices are likely to stay above their previous troughs reached in 2018 and 2014 during the last two cycles as producers are likely to want to protect their margin, Qin said in a video interview with the Post.
“The cost of pig farming has increased since the African swine fever outbreak,” said Qin, China’s ninth richest person in 2019 with a net worth of US$17 billion according to Forbes. “Investments in n ewer equipment, like pig houses, are essential to keep pigs healthy.”
How long the down cycle runs will determine the fortunes of the two dozens listed corporate players, tens of millions of individual farmers as well as many newcomers in the suddenly lucrative industry. The pork crisis has spurred research for a vaccine, and a scam involving a fake cure for the virus.
Pork producers’ profits soared broadly last year, driven by surging prices after hog population dwindled by more than a fifth to 544 million pigs in 2019. Shenzhen-listed Muyuan Foods, for example, reported a 1,075 per cent jump in net profit to 6.1 billion yuan in 2019 from a year earlier.
Qin’s personal wealth shot up along with Muyuan’s share price, which skyrocketed 209 per cent over last year. The shares have climbed 29 per cent so far this year to 114.94 yuan. Its closest rival Wen’s Foodstuffs Group tumbled 22 per cent in the same period.
The quick fortune has prompted players from other industries to rush into the field, with the latest being China Vanke, the nation’s third-largest developer. This, however, is “beneficial to the industry’s supply and consumers,” Qin said, adding that they will contribute to the upgrading and reform of the industry.
Still, new supply will not come quick enough to help end the crisis, or soothe the misery among the consumers, according to Wen Pengcheng, chairman of Wens Foodstuffs Group, who expects “high level” of prices to persist this year.
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“China's sow herd is still at a historically low level, even though output has recovered somewhat since late last year. This will impact the hog production this year substantially, he said in a written statement. “The African swine fever virus remains a major challenge to China's pig farming industry.”
Pork is one of the biggest components in the basket of goods that make up the consumer price index. The index has risen for 11 consecutive months through January, driving China’s inflation to an eight-year high, before the coronavirus outbreak cooled demand.
Pork supply will remain tight this year, Liu Yonghao, chairman of New Hope Group, one of China’s largest pig breeders, predicted recently.
“Hog output won't form a surplus this year. We will still see a shortage of pork and high pork price in 2020,” said Liu, adding that there may be oversupply in the coming few years.
Muyuan has set the target to produce 17.5 million to 20 million hogs this year, almost doubling its output last year at 10.3 million, Qin said in the interview.
The company adopts a heavy-asset model of building and operating its own pig houses, unlike most of its competitors who commission villagers to raise pigs on behalf of the company. This means Muyuan has control over how it raises the hogs, a key to better efficiency.
Muyuan is trying to introduce smart technology to the pig farming industry, such as unmanned inspection equipment that can be applied in multi-story pig houses, which could potentially improve the herd’s health, according to Qin. It is also boosting automation in the farming process, making sure procedures from feeding to room temperature control are all automatically performed.
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