China's soybean meal and feed demand is expected to be supported in the near term as hog producers have been reluctant to reduce oversupply in 2024 despite the agriculture ministry's advice to cut mounting industry losses, trade sources told S&P Global Commodity Insights Jan. 25.
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Register NowIn 2023, the country's hog industry suffered average losses of Yuan 76/head ($10.70/head), Lei Liu Gong, director of market and information technology at the agricultural ministry said during a press briefing Jan. 23, urging hog farmers to reduce their population to improve margins and pork prices.
Soybean meal and soybean demand is correlated with the hog population. A reduction in hog population diminishes demand for the grain, while an increase leads to higher consumption.
Trade sources said some hog producers in China have not been keen on destocking after incurring high capital expenditure in farming and are hopeful of margins improving should their competitors destock.
"Enterprises are unwilling to heed the advice from the ministry on sustained losses," a Chinese trader said.
High hog stocks and poor domestic demand have driven prices down.
DCE live hog futures for the January 2024 contract have fallen 32% since January 2023 to Yuan 13,195/mt. Hog margins have been trading in the red for most of 2023 and were still poor. Current hog breeding margins were around minus Yuan 100/head, according to trade sources.
The upcoming Lunar New Year festive is typically a bullish season for pork but so far it has failed to garner more demand than expected, with only a slight increase seen for cured meat preparation.
"An aging population and reduction in spending power is one factor that has led to the decrease [in hog prices] alongside oversupplies in the market," a Chinese broker said.
A Chinese hog producer said that major producers could be looking at increasing or maintaining their population, even after the government's advice.
"Piglet prices went up recently as firms are trying to replenish supply for hog sales in six months. [The producers] cannot be caught without enough hogs to sell when a bull market eventually arrives so [they are left with] no choice but to maintain production," the producer said.
Soybean prices drop
Soybean prices have been under pressure in January due to higher global supplies.
Platts, part of S&P Global, assessed SOYBEX CFR China at $472.89/mt on Jan. 24, down from $531.41/mt on Dec. 22.
China reducing soybean meal in its feed ratio to 13% since 2022, from 14.5% previously, to reduce its reliance on imports has also weighed on soybean prices.
The lower ratio of soybean meal feed in rations is equivalent to a reduction of 9 million mt of soybean meal consumption in China, Chen Bang Xun, director of the development and planning department of the agriculture ministry said during the same conference Jan. 23.
Alongside its efforts to reduce reliance on soybean imports, China has been promoting low-protein diets for hog breeding.
Trade sources said if hog destocking materializes in China, it could bring down soybean meal demand further and reduce China's long-term soybean import requirements. China imported 101.7 million mt of soybeans in 2023. The US Department of Agriculture expects China to import 102 million mt soybeans in 2024.