Porto Alegre, June 29, 2023 – The Chinese pork chain continues to suffer from oversupply. The investments made over the last few years have resulted in greater professionalism and strong production growth, so much so that the number of matrices needed for market balance is lower than that registered in 2018, the period before the emergence of cases of African swine fever (ASF) in the country. The USDA’s latest global beef sector report estimated China’s matrix herd at 43 mln head (in early 2023) for an annual pork production of 55.5 mln tons. In 2017, the matrix herd was close to 45.0 mln head for an annual production of 54.52 mln tons. It is also worth mentioning that the Chinese government recently communicated that the number of matrices in the first half of the year is 2 mln head above the ideal.
In addition to the greater sale of animals by those less efficient farmers, less productive matrices were discarded, which ended up resulting in greater availability of pork in the interior of China, bad for the price evolution of both live pigs and pork.
The current scenario of the Chinese market is complicated, considering that besides high supply, there is a more hostile economic scenario, with a slowdown in activity in the country, which has led the government to adopt monetary policies contrary to those practiced in the world, such as cuts in prime interest rates. The effects of such measures on consumption are not immediate, of course, the confidence of families, industries, and the service sector needs to advance, with a better environment for credit.
Thus, the reduction of pork supply will take months to happen and only when there are signs of a decline in the advance of slaughter and disclosure of the number of matrices more in line with the current reality of the market. It should also be considered that the Chinese government built up its reserves of frozen pork due to the unfavorable market environment and in the future will put such volumes into the market.
In view of the factors described, it is natural to understand that China will act in a measured way in pork imports in the global market until the end of 2023. A point that is worth mentioning is that the Chinese currency is in a process of devaluation now, surpassing the level of 7.15 yuan per dollar, a factor that makes imports more expensive, which could lead the country to act more harshly in purchases in terms of prices per ton over the next few weeks.
The attached graphs show the evolution of July and November live pig contracts listed in Dalian. Market agents have little optimistic expectations for the evolution of prices this year, reflecting the factors mentioned so far. The July contract ended June 21 at 14,595 yuan per ton, and the November contract at 15,915 yuan per ton. November is 9% above the spot contract, which can be explained by the expectation of the market’s initial preparations for the next Lunar New Year and a slightly lower supply, even if it remains high.
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