Chinese hog prices have been plummeting for about four months--the latest downturn in a series of cyclical gyrations in China's bipolor hog market which is constantly flipping from surplus to shortage and back again. An interesting recent posting reveals the strategic behavior of Chinese hog producers trying to figure out how to navigate the hog cycle.
The writer--apparently a farmer or industry analyst--has seen people writing in an online forum responding to the steep downturn in prices in two opposite ways. Some say they're bailing out of the business and selling off their sows. Others are asking whether it's a good time to get into the business.
He speculates that the people selling off their sows have lost confidence, are losing money, piling up debts and ready to give up. People thinking about getting into the business think the cycle may be at its bottom, and expect a rebound in prices and profits later in the year. Ultimately, both groups of people are making a judgment about where the hog cycle is going--not that different from financial investors. The writer, however, argues that "real" hog producers don't base their decision on judgments about price cycles.
The writer offers several considerations "real" hog producers should take into account.
Is my farming technique advanced enough? Do my sows bear 2.2 litters per year, or only 2? Does a litter have 10 piglets or 9? Is my farm's mortality rate 10% or 15%?
Am I willing to work harder than my counterparts? Do I have access to vaccines, feed, pig traders? Is my location better-suited to working off-farm? If I persevere through two or three cyclical downturns where I lose 300 yuan on each pig, will I make enough in the good years to be better off than working off-farm?
The writer remarks that raising pigs is an unforgiving, highly competitive market. Whether you stay or go depends on your competitiveness. If you are not as efficient as your competitors, you should get out. "The tide of concentration" is steadily rising. Or, as American farmers used to say, "Get big or get out."
The writer seems to be criticizing the speculative behavior that contributes to the hog industry's volatility--people who jump in and out of hog-raising in sync with cycles. The writer urges people to raise pigs only if they're good at it. If they are, they should stick out the downturns and wait for a "new dawn to come," "after your brothers have lost confidence."
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