Hog prices in China are expected to fall further next year, curbing demand for imports at the world's top pork consumer and pushing US-based Smithfield to ramp up sales elsewhere, WH Group executives said.
Hog prices in China are expected to fall further next year, curbing demand for imports at the world’s top pork consumer and pushing US-based Smithfield to ramp up sales elsewhere, WH Group executives said.
Smithfield, the biggest US pork producer, has already boosted sales to Mexico, Japan and South Korea this year as demand from China has waned and hog prices there have slumped.
Exports from the US business to China have dropped 12 percent in the first three quarters, but overall exports have grown more than 20 percent, driven by demand in other Asian markets, Luis Chein, group director and head of investor relations, told Reuters last week.
The drop in exports to China belies expectations of analysts that with its $4.7 billion acquisition of Smithfield in 2013, WH Group would be able to rapidly grow its exports to China.
Hog prices in the first quarter of 2018 are set to drop sharply, reaching a bottom in the second quarter, according to the company’s forecast.
WH Group chairman Wan Long said China, though, will continue to import pork in the long term, with its huge demand and relatively high production costs helping maintain the gap between Chinese prices and the rest of the world.
Chinese imports surged last year when domestic prices hit a record high of 21 yuan ($3.18) per kg. Prices have dropped to an average 15.2 yuan per kg in 2017, however, pushing imports in the first ten months of this year down 28 percent to 1 million tonnes, according to Chinese customs data.
Imports are set to fall further as prices decline again next year to about 13 or 14 yuan per kg, according to WH forecasts, as a rapid expansion by large farms in the world’s top pork market offsets the closure of small family-run operations.
Output of finished hogs by the country’s 20 biggest hog producers is set to increase about 34 percent this year and a further 37 percent next year, said Ma Xiangjie, vice president at WH’s domestic subsidiary Shuanghui.
The companies have expanded rapidly over the last year, seeking to grab market share from smallholders. Large-scale farms, or those producing 10,000 head or more a year, will have more than a third of the market next year, added Ma.
“The volume of expansion of big farms I estimate is bigger than the amount of small ones eliminated. That’s why prices have dropped this year, because there are more supplies,” said Ma.
Shuanghui is China’s top pork processor, slaughtering around 50,000 pigs a day.