Saturday, November 9, 2019

Northeast China Attempts Pork Production Recovery

On-the-ground investigations emphasize that northeastern farms have begun to restore hog production after at least half of the region's swine were lost to last year's African swine fever (ASF) virus and panic-selling. The region is still severely short of pigs, but its slaughterhouses are shipping thousands of carcasses to southern regions where production has not rebounded at all. The facts and figures the report cites suggest there has been only marginal progress in restocking farms, and individual farmers who accounted for the bulk of production pre-ASF are mostly still on the sidelines or raising chickens now.

A report from Huatai Futures is based on interviews with farmers, breeding companies, traders and slaughterhouses in northeastern provinces of Liaoning, Jilin, and Heilongjiang--apparently in October 2019. Another online article and an assessment of a drop in hog prices in early November report similar information.
This chart claims to show the percentage loss in hog inventories (blue bars) in 7 districts of 
Liaoning and Jilin Provinces and the percentage recovery of swine production (red bars) in each district. 
The northeastern provinces were the first in China to be hit by ASF in August 2018 and the epidemic peaked last fall and winter. All farms were severely impacted, especially individually-operated farms. In districts of Liaoning and Jilin provinces hog inventories fell to varying degrees--from 50 percent to as much as 80 percent (see chart above). In Liaoning the number of swine held by small, independent farmers is down 60 to 80 percent from last year, while swine held by large-scale farms is down 30 to 50 percent.

Breeding animals were especially vulnerable to ASF. A string of breeding farms operated by a company in Jilin Province's Songyuan district lost 100,000 sows. One large breeding farm shrank from 26,000 head to 4,000 and has since rebuilt its inventory to 5,000 head. Since March this year, many finishing farms have held back female swine to use as sows, a factor that has contributed to the shortage of hogs available for slaughter. In Liaoning, the government will subsidize half of the cost of imported swine breeding stock and 500 yuan of the cost of breeding swine brought in from other provinces.

Instead of going through a 2-year process of expanding breeding herds to supply commercial finishing farms, many farms are taking a shortcut by holding back females from their finishing herds to use as sows. This process reportedly began in March and the first litters are coming on the market.

With few hogs available, slaughterhouses are operating at less than 20 percent of capacity. One company said it is now slaughtering 1,000 head daily, a fifth of its usual volume. A meat company in Jilin Province said it has been slaughtering 500 head per day, less than a third of its 1600-head capacity. A second company in Jilin said its slaughter fell as low as 750 head per day and is now 1300, still well below its usual 2300-head volume (and as high as 5000 head per day during the peak holiday season).
This chart shows daily capacity utilization by designated hog slaughterhouses in China 
during 2018 (blue line) and 2019 (red line). 
These are probably unpublished data from the Ministry of Agriculture and Rural Affairs.
Meat companies are offsetting losses from slaughtering expensive hogs by selling frozen meat from inventory. The Jilin company says it loses 30-to-40 yuan on each hog it slaughters, but its three plants have been selling 50 metric tons of frozen meat from storage each month. One company says it has 2,300 metric tons of frozen pork in storage, but another report says inventories of frozen meat are running low. The 30,000 metric tons of national pork reserves released last month nationwide had a minor impact on pork supplies.

Hogs are highly profitable. The cost of fattening pigs is estimated at about 13 yuan per kg, while the price for live hogs was reported to be around 35 yuan/kg (when the survey was conducted). With these profits and a limited supply of piglets available, the price of piglets has soared even faster than the price of finished hogs. One company reported an 1,100-yuan sale price for 15-kg piglets--which works out to 73 yuan per kg. The average piglet price in late October was reported to be 1760 yuan in the northeast and 1860 yuan nationwide. One commentator complained that the high price of piglets prevents individual farmers from re-stocking their farms. Another commentator--who identifies himself as a farmer who "listens to farmers"--complains that big companies are making money selling frozen meat they bought from farmers at cheap prices and forcing independent farmers out of business.

With the price of an additional kilogram of hog weight far exceeding feed costs, farms are fattening hogs to 135 to 140 kg, up from usual slaughter weights of 115-120 kg. Individual farmers are raising even fatter pigs of 150-200 kg. (Traditionally, Chinese slaughter weights have been highest in northeastern provinces because corn is cheapest there.) One slaughter plant said its equipment is not set up to accommodate such large animals.

Farms in the northeast that feel confident of low disease risk are expanding. These include mainly large farms confident in their strong biosecurity measures and newly-built farms in regions that were not hit by ASF. In particular, companies are targeting eastern Liaoning Province where the geography is viewed as favorable to disease control. In contrast, no rebound in production is taking place in places like northern Liaoning and patches of Heilongjiang Province that are still vulnerable to ASF. In southern provinces, it is said that neither companies nor individual farmers are willing to restock their farms because disease risk is still too high.

Individual farmers who used to raise 500 to 1000 hogs at a time have mostly stayed on the sidelines because sporadic outbreaks of ASF continue in some areas. Although officials have not made any official announcements, rumors of "dead pigs" in the northeast early this month raised fears of a renewed outbreak. About 30 to 50 percent of individual farmers have switched to raising poultry.

Consumption of pork is down sharply in the northeast. According to one estimate, pork consumption in Liaoning Province is down 40-to-50 percent from normal years, and down 70 percent in poor regions. A supermarket chain in Liaoning said its pork sales dropped beginning in July and August. Sales are down 40 percent in its Shenyang stores and 50 percent in its Anshan outlets. Chicken sales are up 20 percent and prices have also risen. Increased sales of chicken and beef do not offset the decline in pork sales.

About half of the carcasses produced by the northeast region's slaughterhouses are shipped south, where prices are higher. A Jilin Province meat company says it sends 15-to-20 large trucks packed with carcasses to Guangdong/Guangxi each day.  Hunan/Hubei, and Shanghai/Zhejiang are also destinations. Smaller trucks carry pork to closer markets. Another slaughterhouse says it sends 200-to-300 carcasses a day to Jiangsu Province and sent 260 head to Shandong.

Thousands of miles to the south in a Shanghai market, a pork vendor said he now pays 52 yuan per kilogram for pork, three times the 16 yuan/kg he used to pay. He used to sell 6 or 7 half-carcasses daily, but now he sells only one. He grinds up unsold meat to make dumplings that he sells elsewhere.