Wednesday, January 13, 2010

Bragging About Hog Market Intervention

An article in the Farmers Daily boasts that the Hog Market Intervention Program introduced in January 2009 has stabilized the pork industry.

A year ago, the National Development and Reform Commission, Commerce and Trade Ministry, Agriculture Ministry, Commercial Bureaus, and import/export/quarantine administration jointly issued regulations on controlling falling hog prices. According to the plan, the government will monitor certain indicators, chiefly the ratio of hog and grain prices, and buy up pork when the hog-grain price ratio gets too low.

On January 12, an NDRC spokesman said the regulations had reduced cyclical fluctuations in hog prices and promoted stable development of the hog sector. He said last May the hog-grain price ratio went down to 6:1--the loss threshold--and farmers started losing money. After purchases of pork started in June, the hog price revived and commercial producers returned to profitability. According to NDRC surveys, in May 2009, commercial-scale hog producers’ profit averaged 18.44 yuan per head. After the market intervention, the hog price went up and the profit reached 23.16 yuan in June.

The structure of the industry is changing. The article seems to connect this to the intervention program, but it's not clear why large-scale producers would benefit more than small ones. According to Ministry of Ag surveys, over 60% of hog production is by farmers slaughtering 50 or more head per year, up 10 percentage points from 2007.

The article emphasizes with a paragraph of redundancies that the program requires extensive cooperation and coordination among different departments and different levels of government.

According to Ministry of Agriculture estimates, the national hog inventory stood at 465.9 million head at the end of November 2009, of which 48.7 million were breedable sows. Sows now constitute 10.5% of hog inventory, higher than normal. The article assures us that this means the hog supply is plentiful and there will be little increase in pork price during the spring festival. Prices could go up slightly during the holiday, and then fall a bit when demand falls off after the holiday.

According to an article on Jan. 7, the NDRC said the hog-grain price ratio was 6.58:1 at the end of December, above the breakeven point. The average wholesale price nationally was 15.51 yuan/kg, up 6.7% from the previous month. The feeder pig price averaged 17.63 yuan/kg, up 1.67% from the previous month. The hog inventory at the end of November noted above was down 0.7% from October, the first decline after four straight months of increases in hog inventories.

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