Yahoo Finance China’s Hog Farmers Enjoy Surge in Profits But Demand Is Still a Problem
(Bloomberg) -- China’s hog farmers may have turned a corner after a surge in profits last month, but a sustained improvement in the industry’s fortunes could still prove elusive.
Most Read from Bloomberg
Short Sellers in Danger of Extinction After Crushing Stock Gains
Mnuchin Chases Wall Street Glory With His War Chest of Foreign Money
How Billionaires Bought 70% of Detroit’s Offices and Transformed the City
NYSE Fixes Issue That Showed 99% Drops, Triggered Trading Halts
Pig prices have climbed to their highest level since the end of 2022, driven by a decline in production. The constraints on supply, plus a drop in feed costs, have fueled a similar jump in margins. Further seasonal gains in the price of China’s favorite meat are likely in the second half of the year, according to the agricultural ministry.
But what’s missing from the equation is a durable increase in demand. It’s a common theme across China’s commodities markets, as the economy has struggled to recover from the pandemic amid a protracted crisis in the property market.
The rise in pig prices doesn’t guarantee a prolonged shift back to profitability for farmers, according to Justin Sherrard, global strategist for animal protein at Rabobank. “These are early signals that the turn in the pork cycle is coming, but until we see sustained signals of stronger demand, China is not quite there yet,” he said.
Read More: China’s Distressed Pig Farmers Eye Turnaround as Herd Shrinks
The pork cycle, which can last three or four years, is driven by mismatches in supply and demand. It’s closely watched by economists for clues on inflation. Last year, China’s consumption fell by 1 million tons to about 54 million tons. Production, meanwhile, climbed to a nine-year high of nearly 58 million tons. That imbalance contributed to the deflationary pressures which are now entrenched in the economy and posing risks to Beijing’s targets for growth.
It’s not just penny-pinching households worried about China’s slowdown who are buying less meat during the weekly shop. Consumption is lagging in the services sector as well, with restaurants and factory canteens replacing pork with cheaper proteins to reduce costs, said Pan Chenjun, a senior analyst at Rabobank.
Still, the farm sector is probably in better health these days and more able to maintain profitability, after the the last trough in the cycle cleared out a lot of smallholders who couldn’t weather the tougher conditions.
That consolidation has allowed the formation of large-scale agribusinesses, which can take on more risk and investment than smaller family farms, said Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd.
On the Wire
Chinese miner MMG Ltd. is seeking to raise about $1.2 billion via a rights issue in Hong Kong, with the proceeds to be used to repay existing debt so that it can continue to develop existing projects.
Beijing’s push for greater energy security amid escalating global geopolitical tensions and trade protection could shift the nation away from oil consumption toward greener renewable energy and cleaner gas.
Cofco International Ltd., the trading arm of China’s largest food company, is exploring options including a sale for its Chicago grain terminal, according to people familiar with the matter.
Just days after celebrating a landmark deal to share ownership of one of the world’s biggest lithium operations, SQM and Codelco are turning to regulatory — and possibly legal — obstacles.
This Week’s Diary
(All times Beijing unless noted.)
Tuesday, June 4:
Hong Kong & China Gas holds AGM press briefing in HK, 12:40
Wednesday, June 5:
Caixin’s China services & composite PMIs for May, 09:45
CCTD’s weekly online briefing on Chinese coal, 15:00
Chongqing Petroleum and Gas Exchange forum, day 1
Thursday, June 6:
Chongqing Petroleum and Gas Exchange forum, day 2
Friday, June 7:
China’s 1st batch of May trade data, including steel, iron ore & copper imports; steel, aluminum & rare earth exports; oil, gas & coal imports; oil products imports & exports; soybean, edible oil, rubber and meat & offal imports ~11:00
China foreign reserves for May, including gold
China weekly iron ore port stockpiles
Shanghai exchange weekly commodities inventory, ~15:30
Chongqing Petroleum and Gas Exchange forum, day 3
--With assistance from Hallie Gu.
Most Read from Bloomberg Businessweek
The Budget Geeks Who Helped Solve an American Economic Puzzle
Startup Brings New Hope to the Pursuit of Reviving Frozen Bodies
Disney Is Banking On Sequels to Help Get Pixar Back on Track
How Rage, Boredom and WallStreetBets Created a New Generation of Young American Traders
©2024 Bloomberg L.P.
