Can China's "Window Guidance" Prevent a Hog Market Depression Next Year?

Chinese officials are ordering hog companies to put the brakes on their expansion plans to prevent a new round of depressed prices in early 2026. Company officials assert that they have dutifully complied with the orders. But with profitable hogs and a vicious race for market share, there is still strong incentive to quietly ignore the government's orders...as they did over the past year.

Earlier this month China's planning agency, the National Development and Reform Commission, issued "window guidance" ordering big companies to stop expanding their sow inventories, pare back slaughter weights to 120 kg (265 lb), and to halt "secondary fattening" (when farmers buy hogs weighing 100-to-120 kg and fatten them to 130-to-150 kg). 

Last week a China's agriculture ministry convened a meeting of government officials and hog companies to put the brakes on growth in hog supplies. China's agriculture minister warned that China's hog industry still faces risks of fluctuations in price and production stemming from the build-up of production capacity. The minster called for strict capacity control measures, rational elimination of sows, control of slaughter weights, reduction of secondary fattening, and strict controls on expansion of capacity.

Government and company officials get their hog industry marching orders
at a meeting organized by China's agriculture ministry. 

Chinese financial news site Cai Lian She blamed low hog prices of 14-to-16 yuan per kg in the first half of 2025 on capacity expansion fueled by large capital investment in the face of weak demand. At the same time, big hog companies claim to have cut costs to 12-to-13 yuan.

China's hog glut was generated by a perfect storm of rising hog prices and declining feed prices a year ago, creating fat profits that, in turn, stimulated expansion. Hog prices went up 50% between January and August 2024. During that same period surging soybean imports drove down the price of soybean meal 24%. Then, a huge corn crop of 295 million metric tons last fall drove down corn prices 15% during Q4 2025. Thus, feed costs--which account for about 60% of production cost--declined, contributing to profitability.

With profits high, the national sow inventory remained high despite jawboning by officials since last year calling for a reduction. By mid-2025 China's swine inventory was 40.43 million head, up fractionally from a year ago. The sow inventory is 3.7% above the agriculture ministry's recommended target of 39 million. Profitability overlaid on a race for market share encouraged the two largest hog producers, Muyuan and Wens, to add hundreds of thousands of sows in Q4 2024 and Q1 2025. 

Calculations using data from China National Bureau of Statistics raw material prices.

Consumer demand was not strong enough to sustain last August's high hog prices, so hog prices fell in the second half of 2024 and early 2025. By mid-July 2025 the average hog price was close to the depressed prices that had prevailed in January 2024. 

Meanwhile, corn prices edged upward during 2025 as expansions in hog and poultry industries boosted feed demand while imports of corn were cut back more than 80% from a year earlier. Soybean meal prices snapped back in February 2025 as the trade war pared back imports of U.S. soybeans, but meal prices crashed again in May as record volumes of Brazilian soybeans arrived.

At the agriculture ministry's meeting last week it was noted that hog production has been profitable since May 2024--timing that corresponds to the perfect storm of rising hog prices and falling feed prices last year. Company reports issued for H1 2025 seem to confirm this. Muyuan, the largest producer, saw its profit grow 9-fold, and New Hope Group transitioned from losses last year to a profit of 680-to-780 million yuan in 2025 so far. Even companies that sought bankruptcy protection in recent years say they are moving toward profitability and are restoring production capacity.

According to Cai Lian She, the Government's "window guidance" to rein in expansion plans and instead focus on R&D -- will relieve downward price pressure and put the industry on a "high-quality development" path dictated by Xi Jinping himself. Big companies told official news media they are cutting back on sow numbers and will stop selling hogs for "secondary fattening." 

Chinese officials are essentially attempting to enforce a cartel by ordering 20 big hog companies and 19 million hog farms to agree on a cutback in production to boost prices. For decades economics textbooks have included explanations of how a "prisoner's dilemma" game theory outcome tends to undermine such agreements to restrict output and raise prices. When production is profitable, companies have incentive to cheat on the agreement by surreptitiously selling a little extra at the high price. If all companies cheat, market supply expands and drives the price down, undermining the agreement. 

While China's hog industry has consolidated rapidly, it is still much too large and sprawling to enforce the order to restrict output. Even if the largest companies restrict output as they promise, the 20 largest companies produced only 24 percent of hogs in 2024. At last count in 2022, China had nearly 1000 farms producing 50,000 head or more annually. China has lost 86 million small "backyard" farms over the last 20 years, but there are still about 19 million of them--many engaged in "secondary fattening." 

China Animal Husbandry and Veterinary Yearbooks.

China Animal Husbandry and Veterinary Yearbooks.

With millions of farms and production sites scattered over the countryside, officials cannot possibly enforce limits on production or capacity. As long as hogs are profitable companies will make promises and fill out report forms for the government while secretly expanding their sales. It has already been rumored in the past that companies fudge their reports to government statisticians. Inspectors are not allowed in barns due to biosecurity measures. And the companies are smart enough to game the automated electronic reporting that officials are counting on to eliminate the subterfuge. 

At last week's meeting the agriculture ministry bragged about the effectiveness of its supply control efforts begun last year. They did not explain why it was necessary to issue a new dire warning about downward pressure on hog prices if last year's market stabilization measures were so successful. This month an expert from China's hog industry early warning group predicted a 10-to-20 percent decline in 2025 hog prices, citing an expanded pig crop in H1 2025 that will exert downward pressure on hog prices. While dismissing any possibility of a crisis, the official warned that downward pressure of prices could carry over into the first quarter of 2026. 

Year-over-year performance measures could soon start to look less favorable. In Q3 2025 year-over-year indexes will now be compared with the perfect storm profits of Q3 2024.

The "anti-involution" policy--as described by Cai Lian She--ordering companies to pull back the throttle is aimed at avoiding a new round of losses in early 2026. Cai Lian She also noted that hog companies have historically high debt-asset ratios exceeding 50 percent--accumulated through debt-financed expansions--raising the prospect of bankruptcies and financial stress that could follow.

A Chinese feed industry site and at least one securities analysis firm predict that the government's "window guidance" will succeed by easing downward pressure on prices. It remains to be seen whether Xi Jinping's "high quality development" can solve the textbook cyclical gyrations and "prisoner's dilemma" that have confounded hog producers in China and western countries for at least a century.