Looking at the size of the breakdown of the inventory for August 2011 breeding stock was around 47.86 million and total on-farm inventory was about 461.42 million (as compared to May 2011 breeding stock was around 47.1 million and total on-farm inventory was about 453 million head). The 461.42 million head for August is up 1.10 per cent from July. Sow inventory reached 47.86 million head in August, up 1.40 per cent from July. Sow inventory had increased in September 2010 but decreased through October and November, a marginal increase in December and then slightly lower in January to March 2011. A gradual increase in sow inventory has occurred since March.

Live hog prices continue to rise since 18 July, when the national price was RMB19.14 per kg liveweight (approximately US$2.96). Last week, 24 August to 4 September, the national average price for slaughter pigs was RMB19.48 per kg ($3.05). Over the weekend, the average price reached RMB19.57 per kg ($3.06). This average price was almost equivalent to the peak prices reached in late June. June's price reflected a year-on-year increase of about 85 per cent. In late June, the national average live hog purchasing price reached RMB19.60 ($3.03), with some provinces exceeding RMB20.00 ($3.09).

Profit margins continue to show strength. During the spring 2010, there were losses for most large-scale farms. With increasing market price, the profit margins have gained significantly – RMB100 per market pig for July 2010 or $14.90; RMB140 per pig for September 2010 or $20.90; RMB260 per pig in November 2010 or $39.03; RMB325 per pig for March 2011 or $50.00, and May when the profit margins were closer to RMB510 per pig or $78.82. June again showed an increase in profit margins to RMB770 per pig ($119.10). This appears to be the maximum for profit margin as feed costs (mainly corn and soybean meal) continue to rise. Profit margin for August is estimated to be RMB721 per market pig ($112.83).

National piglet price rose to RMB45.82 per kg ($7.17). This is a rise of 129.56 per cent from the beginning of the year.

Short term scenario

Farmers have high expectations that the market price will be steady or will slightly increase through the mid-autumn Festival and through the Golden Week holiday (1 to 8 October). Also, now that schools and institutions are back from summer breaks, the demand for pork will increase. Current market analysis suggest that the pork and pig prices will increase before the holidays; remain steady through to the end of the year and then there may be some price relief after the Spring Festival (on 23 January 2012). Throughout 2010, the inventory of live hog and fertile sows declined and now overall supply is tight – disease played a major role in 2010 as 'summer fever' caused death, reduced fertility and caused lower piglet survivability. Following the concentrated slaughtering before Spring Festival in 2011, February and March are the traditional inventory peak periods but that peak has been delayed.

Now, it is suggested that pork and pig prices will continue to rise because of several factors:

1. Tight supply as small backyard farmers exit from the market and farming in general and relocate to the large urban centres to work. China's Ministry of Agriculture just released the next five-year plan for agriculture development, the 12th five-year Plan (2011-2015). It is estimated that 40 million rural labourers will leave farm jobs during this five years. Many of them were former backyard pig farmers.
   
   
2. Higher feed cost will keep the market price at a high level. Corn prices continue to rise.
   
   
3. Large farms are not able to keep up with the demand.

What to watch for over the next few months

The pig and grain (corn) ratio in December was at the profitable level of 6.7:1. In February, the pig and corn ratio was 7.12:1 and was 7.07:1 for March and was 7.63:1 for May. Currently, the ratio is 8.08:1. With continued Government incentives and 'huge profit margins', pig expansion in China will continue.

Since the beginning of 2011, the live hog price has been increasing continuously and reached a high of RMB20.00 per kg ($3.09) in late June, which is the same as the peak price in 2008, up over 40 per cent from early 2011 and up nearly 90 per cent year-on-year. Current live hog price increase has resulted from a very limited supply of market pigs: for the first six months of 2011, there was 4.8 per cent fewer live pigs sold into the market. The main reasons for the shortage can be related to:

1. Live hog price had been falling in 2008, 2009 and showed the lowest level in the first half of 2010. Farmers were worried for the continuous price decline in the first half of 2011, so that the replenishment was not positive even though farming profit began to increase in the second half of 2010.
   
   
2. Diseases, especially PRRS and diarrhoea in early 2010, resulted in low piglet survival rate, live hog inventory decline and thus market hog supply decreased for the first half of 2011.
   
   
3. In the past three years, hog diseases came up frequently; sow reproductive performance and piglet survival rate both decreased and thus eventually live hog inventory declined drastically.
   
   
4. Along with frequent diseases, costs of production factors, such as feed and labour, have been rising fast. Many small-scale farmers were facing the influence of the diseases and now the market risk. On the other hand, urbanisation with other job opportunities and with a higher payment also led to a large number of small farmers exiting market.

Statistics from China Animal Agriculture Association (CAAA) shows that in 2009, pork accounted for 65 per cent of the meat consumed by Chinese consumers. Pork is usually the most affordable meat in China and its price weighs heavily on the Consumer Price Index (CPI), which is often referred to as the 'Consumer Pork Index'.

The Consumer Price Index (CPI) is becoming quite interesting to the national government. Rapidly increasing pork prices has gained the attention of the National Government. Currently, inflation is hovering around 6.2 per cent for August, 2011. This is a drop from the high of 6.5 per cent in July. July pork prices were about 57 per cent higher than the same period in 2010. The CPI is made up of about 30 per cent food found in the consumers' basket. Pork is estimated to be about one-third of the food portion of the basket or in other words, about 10 per cent of CPI as a whole. If this is the case, then with about a 90 pr cent increase in the price of pork, year-on-year, then the price of pork would have a substantial effect on the CPI rise. It is estimated that a 20 per cent increase in the price of pork will drive up the CPI by 0.6 percentage points. Watch the action of the National Government on pork prices, supply, imports and incentives to large-scale producers.

According to sources from the Ministry of Commerce (in charge of slaughterhouses), and looking at meat prices across the country, one can quickly see that pork prices lead in the overall substantial increase in meat prices. For example, on 3 July 2011, pork rose by 3.4 per cent; chicken rose by 0.5 per cent; mutton rose by 0.4 per cent and beef dropped by 0.2 per cent. The week before, pork had risen by 4.5 per cent. In the week ending 28 August, pork rose by 0.3 per cent; chicken rose by 0.2 per cent; mutton rose by 0.45 per cent and beef was up by 0.1 per cent from the week before.

Again from the Ministry of Commerce and in early September, pork prices in China rose to a record high of RMB26.22 per kg ($4.10). This is even higher than the previous record of RMB26.15 ($4.09) in mid-July. Prices have climbed by a vast amount since May (11.4 per cent). Pork prices in Beijing in early July, rose to RMB36 per kg ($5.63).

With increased demand for pork by middle- and high-income consumers and a tight supply of pork, this has contributed to a rapid increase in pork prices. Food prices rose by 13.4 per cent in August. This, in itself has a great impact on the CPI. Price of pork has risen by 45.5 per cent (up 1.3 per cent from July) since the beginning of the year. Last week (29 August to 4 September), the wholesale price of pork rose 0.4 per cent from the week before. The pork price continues to have a large impact of the CPI.

China will harvest 182.5 million tons of corn this year, up about 2.96 per cent from a year earlier. This is a slight increase in estimate from July. China National Grain and Oils Information Centre (CNGOIC) states that soybean output is expected to be about 10.6 per cent less than last year (or about 13.5 tons).

In late August, the Animal Husbandry Bureau says that the high pork prices were chiefly due to the surging cost of raising pigs. Feed ingredients and corn prices reached RMB2.18 per kg ($0.34) on average in the first half of the year. This is up 10.7 per cent from one year ago: for example, on 22 June, pork price was RMB19.58 per kg ($3.06) and corn was RMB2.24 per kg ($0.35) with soybean meal at RMB3.27 per kg ($ 0.51); on 2 September, the price was RMB19.48 per kg ($3.05) with corn at RMB2.41 per kg ($0.38; a record high) and soybean meal was RMB3.45 per kg ($0.54). Current estimates to raise a pig to 100kg is about RMB1,350 ($211.27) per pig. This is 23.3 per cent more than last year.

It is estimated that the average Chinese citizen will consume 39.3kg (86.6 lbs. of pork this year). This compares to the 19.7kg (43.4 lbs) in 1990 (USDA data).

The Chinese like pork. Would it not be grand if we could achieve the same consumption results in North America? asks Mr Lane.