Meaty economic indicator? China’s distressed pig farmers eye turnaround

Chinese farmers are keeping the fewest pigs for breeding since 2020, offering hopes that the industry is on the cusp of sustained profitability after years of losses.

Key indicators point to the market having bottomed. Foremost was the drop in the sow herd to below 40 million head, a four-year low, reported by the government last week. The number of sows determines the number of piglets and ultimately the amount of meat on the shelves. As a consequence, pig prices have jumped more than 10 per cent in the last two months, while margins have been positive since mid-March.

The so-called pork cycle in China, where prices are driven by mismatches in supply and demand, has implications beyond farm incomes. Analysts look to the cycle for clues on inflation because the nation’s favourite meat is an important element in the basket of goods used to measure price changes. Weakness in livestock markets has contributed to the deflationary pressures that have weighed on consumer spending in recent months, posing risks to Beijing’s target for economic growth.

Still, the moves are insufficient to herald a major turning point, according to Zhu Zengyong, a researcher at the Chinese Academy of Agricultural Sciences. Rather, the market has entered “an upwards cycle on a smaller scale”, he said.

“The fall in the sow herd, though continuous, is still not enough to restart a major new pork cycle,” said Zhu. “In addition, demand has been weak since the second half of last year due to the macro economic environment.”

China’s pork cycle is just another variant of the booms and busts that characterise commodities markets and typically lasts three or four years. The current one began with a steep drop in prices in 2021 after farmers expanded their herds to capture better margins.