Thursday, November 10, 2011

Hog Prices Declining: Why?

Chinese pork prices have been at record-high levels this year, but now they've started to fall. The Ministry of Commerce price-monitoring system reported that retail pork prices fell seven weeks in a row beginning in mid-September. By the first week of November, the average pork price had fallen 5.4%.

A reporter for Southern Rural News investigated the reasons for falling pork prices by interviewing farmers, feed producers and others in the hog industry. There is no clear reason for the decline, and, as usual, it's a complicated story.

The reporter said there is lots of talk of disease problems, but he found that mortality rates are not higher than normal and disease outbreaks are too limited to cause a national decline in prices. At best, he says, disease is the catalyst setting off price declines, not the fundamental cause.

The supply of piglets was exceedingly tight earlier in the year. The main reason was an outbreak of diarrhea that affected piglets. It began last December and continued through March, spreading from north China to the south. The barns on some farms had nearly 100% mortality, with new-born piglets affected the most. Many sows aborted or had stillborn piglets.

According to the reporter's assessment, once the diarrhea threat was over, pork prices were exceedingly high and farmers were eager to expand production. Large number of sows farrowed at the same time. Then, last summer disease problems were unusually rare and survival of the big crop of pigs born in the spring was unusually high. Consequently, large numbers of pigs came on the market in September. This large supply drove prices down.

However, the reporter said people in the feed industry disagreed with his assessment. The feed people said their sales of hog feed had been slow in recent months, contradicting the theory of swelling hog inventories.

The reporter then warns that a "panic selling" explanation cannot be discounted. As hog producers see prices start to fall, they sell hogs as fast as possible to avoid getting caught by further decreases in prices in future weeks and months.

The Ministry of Commerce data shows that most food prices have stopped rising and some others are falling. Vegetable prices fell 11.3% over four weeks. Eggs, fish, flour, and soy oil are down, while rice and peanut oil and rapeseed oil prices are steady.

Whatever the cause, the reporter observes that risk for hog producers has increased.

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