China Sows 21% From End-of-Year Target

China's agriculture ministry pronounced the country's restocking of swine farms is proceeding "faster than expected", based on Q3 2020 numbers released by the statistical bureau last week. With local officials under orders to show results in this "major task", there is strong incentive to inflate the numbers. Swine prices have climbed back to near-record levels despite the frantic rebuild...and peak pork consumption season is just a couple months away.

The National Bureau of Statistics reported that China's swine inventory had risen for the last three quarters to reach 340 million head at the end of June. The inventory had been 310 million at the beginning of the year--the lowest swine herd number reported by the bureau since 1984. Pork output in Q2 2020 was 9.6 million metric tons (mmt), down from 10.4 mmt in Q1. However, pork production in Q2 was just 6 percent less than a year earlier, a much narrower shortfall than the 29 percent shortfall in Q1 2020. Hog slaughter was 119.7 million in Q2 2020, down from 131.3 million in Q1.

Source: data from China National Bureau of Statistics.

The inventory of sows is a key indicator of the industry's rebuild since they are the capital stock that produces piglets that become finished hogs. A Ministry of Agriculture and Rural Affairs spokesperson said that the sow inventory has increased 9 months in a row. The sow inventory in June 2020 was larger than a year earlier--the first year-on-year increase since 2018 and "an important turning point", according to the spokesperson.

According to earlier reports, the Ministry's objective is to boost sow numbers to 43.9 million by the end of 2020--the number of sows at the beginning of 2018 before the African swine fever epidemic began. The statistics bureau estimates sow inventory at 36.3 million at the end of June 2020. That means the herd needs to add 7.6 million sows in six months--a 21 percent increase.

Note: Gray bars calculated using monthly reports from the Ministry of Agriculture and Rural Affairs. Other estimates from National Bureau of Statistics.

The Ag Ministry spokesperson said farmers are now eager to raise hogs. The Ministry says 6,177 new large-scale swine farms were built in the first half of the year, 10,788 farms that killed off all their pigs last year have now restocked, and the Ministry's monitoring of villages shows that individual farmers have increased their swine holdings over the last five months.

Meanwhile, prices are still not far off their record highs despite the restocking of farms. A couple months ago, the Ministry trumpeted news about extended declines in hog and pork prices as evidence of the sector's recovery. Since then, hog prices turned up again as consumption began to rebound with the lifting of covid-19 lockdowns in China. Restaurants, school and workplace cafeterias are reopening and pork consumption is rising faster than supply. Piglet prices never came down much and are now over 100 yuan per kg., an indicator that piglets are still scarce.

Source: Ministry of Agriculture and Rural Affairs weekly wholesale market prices.

The Ministry of Ag spokesperson admonished local officials not to let up on their work on the "huge task" of restoring swine production and ensuring pork supplies. The central communist party leadership and the State Council have declared restoration of pork supplies to be a major task for agricultural and rural work this year. Local officials have been ordered to make land available for pig farms, ensure that generous loans are collateralized with live pigs and farm facilities, and to expedite environmental impact assessments. Big "dragon head" companies infused with cash from soaring "pork concept" stock prices are expected to "pull along" individual farmers.

Massive flooding in southern China is slowing down the rebuild by disrupting transportation of piglets and breeding swine, and by raising prospects for resurgence of disease. Last week, the Ministry of Agriculture issued a circular warning farmers and officials to guard against African swine fever, blue ear disease, avian influenza, anthrax and epizootic diseases due to flooding and decomposing carcasses.

Local officials Officials have been ordered to implement policies and to bear "responsibility" for achieving the objectives. They have been given statistical targets they are expected to meet. This is a mixture that typically results in bloated statistics. The statistics are guaranteed to show success by the end of the year whether it actually occurs or not.