China to use pork reserves to stabilise market

China’s state planner said on Wednesday it aimed to use state reserves of pork to stabilise hog production and prices, after a more than 50% plunge in pork and hog prices since the beginning of the year

China’s pork industry is recovering from an outbreak of the deadly African swine fever virus that devastated the hog herd during 2018 and 2019, but prices this year have fallen far more steeply than expected, analysts said.

Current hog prices of about 15.6 yuan ($2.44) per kilogramme are below the break-even point for many farmers, which could push some out of business, and lead to a substantial hit to supply later on, said Li Ming, analyst with Myagric.com.

“The key purpose is to send a signal to the market that the government will not let prices fall further”

“The risk is high that the markets will be quite volatile,” he said.

The National Development and Reform Commission (NDRC) said in a statement it plans to improve the way its pork reserves operate to help stabilise hog production and pork prices.

“Recently, with the ‘pig cycle’ on top of the African swine fever epidemic and the coronavirus epidemic, the normal operation of the pig industry is seriously affected,” the state planner said.

China has held an undisclosed volume of frozen pork for years but the reserve is estimated to be too small to significantly influence the market.

The NDRC said it would significantly increase its stocks but did not give further details.

It will also set up an additional temporary reserve that will play a more active role in setting prices by buying from the market when prices fall too low and releasing stocks when supplies become tight.

“The key purpose is to send a signal to the market that the government will not let prices fall further,” said Pan Chenjun, senior analyst at Rabobank.

Live hog prices have already started to pick up in many regions this week, ending a steep, months-long plunge that caught the market by surprise.

But talk of new disease outbreaks in the south and southwest in the last couple of weeks could trigger more panic selling by farmers, added Pan, pushing prices down again and prompting purchases by the reserve.

The NDRC said it also planned to adjust an early warning system that is in place to alert the authorities to declining pig production profits, which can lead to large fluctuations in supply and prices.

It has raised the break-even hog to grain ratio to 7:1 from 5.5:1 previously, apparently reflecting higher production costs after farmers were forced to invest more in farm hygiene to protect against African swine fever.

However, it will also consider retail pork prices and stocks of breeding sows when issuing warnings in the future, the NDRC said.