China Pork Price Jump Seen Faltering as Big Farms Boost Output

  • Consumption may have peaked as Chinese population ages
  • Pork's impact on inflation index to diminish: New Hope

The surge in Chinese pork prices in July that pushed up inflation is likely to falter as domestic hog supply expands, according to the nation’s biggest maker of animal feed.

Bigger farms now dominate the Chinese industry as lower prices in the past four years led to the “relatively complete exit” of small holders, Wang Hang, the vice president of New Hope Group Co., said in an interview last week. Combined with a reduction in pork’s importance in the Chinese diet, that should reduce its outsize impact on the Consumer Price Index.

China CPI Vs. Wholesale Pork Price

“The dominance of big farms makes it easier for the industry to boost supply whenever there’s a shortage,” Wang said in an Aug. 27 interview in Beijing. “China’s CPI will truly be a consumer price index instead of a ‘Chinese pig index’,” he said, referring to a nickname inspired by spikes in pork prices in 2007 and 2011 that spurred the central bank to tighten money supply as inflation exceeded government targets.

Wholesale pork prices in China have surged almost 30 percent since March after almost 110 million hogs and sows were culled over the past 18 months as millions of small holders exited the industry. That’s set to boost imports -- with Rabobank International expecting them to rise more than 45 percent this year.

The changes in industry structure, combined with shifting tastes, are making pork supply more predictable, Wang said.

Inflation Jump

Pork’s “overly sensitive” role in CPI has also been felt this year, Wang said. The inflation gauge jumped 1.6 percent in July from a year earlier - largely fueled by a 17 percent surge in pork prices.

Poultry, beef, fish and other protein sources are reducing pork’s market share. It now accounts for less than 60 percent of total meat demand compared with a share of more than 90 percent 30 years ago, Wang said.

Moreover, “the market shouldn’t underestimate the aging population trend,” Wang said. “Chinese pork consumption may have already peaked.”

New Hope won’t slow its pace of investing overseas even as China’s surprise devaluation of the yuan in August shook global markets, Wang said.

The devaluation doesn’t affect the group’s finances as it raises funds for overseas investments from outside China, matching the source of income with the liability, Wang said. He did note that the devaluation does make it trickier to assess the yields on any potential overseas investments.

New Hope plans to build five to 10 feed plants every year in the next five years in emerging markets where it can leverage its experience in the biggest emerging economy, Wang said.

“We also see great opportunity in meeting the rising Chinese middle-class consumer demand for quality protein,” Wang said, adding that as Chinese become richer and want to eat better, there’s growing appetite for anything ranging from Wagyu beef to Alaskan crabs.