Looking at the size of the breakdown of the inventory for September 2011-breeding stock was around 48.1 million and total on farm inventory was around 465.57 million (as compared to August at 47.86 million and total on farm inventory was about 461.42 million. This also shows growth since May 2011 — breeding stock was around 47.1 million and total on farm inventory was about 453 million head). The 465.57 million head for September is up 5.38 per cent from last year while the September sow inventory is up 5.13 per cent from last year (year over year). Sow inventory had increased in September 2010, but decreased through October and November, a marginal increase in December and then slightly lower in January through to March 2011. A gradual increase in sow inventory has occurred since March 2011.

During the last week of 29 August - 4 September 2011, the national average price for slaughter pigs was 19.48 RMB/kg liveweight- approx. $ 3.05 US/kg liveweight. 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. Since October 25th, the average price of slaughter pig is 17.97 RMB/kg. liveweight ( approx. $ 2.83 US/kg liveweight). During the time period from 12 September to 10 October, pig prices dropped from 1.4 to 1.5 per cent.

Profit margins continue to show strength. During the spring 2010, there were losses for most large-scale farms. Since that time, and with increasing market price, the profit margins have gained significantly: Now it appears that June 2011, with the profit margin estimated to be around 770 RMB/market pig -$119.10 US, was the peak price. Feed costs (mainly corn and soybean meal) continue to rise or be stable in some areas and the market price has shrunk since then. Profit margin for August was estimated to be 721 RMB/market pig -$112.83 US. Profit margin for October is estimated to be 659 RMB/market pig -$103.62.

Short term scenario

Market analysis suggested that the pork and pig prices would rise through the Golden Week Festival (1-8 October) holidays; however, the retail pork prices fell by 0.7 per cent. Currently, industry estimates that pig supply will gradually rise and this will keep pig prices stable through to the end of the year and then there may be some price relief after the Spring Festival (January, 23rd, 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.

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 Ministry of Agriculture just released the next 5 year plan for agriculture development - 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.
   
   
3. Large farms are not able to keep up with the demand.
   
   
4. During the past year, a piglet diarrhea has caused high mortality. Initially the disease was noted in the southern part of China, but more recently (July and August) in the North Central parts of China. A wet July and August, lead to more farms having a high death loss. This could cause lower pig supplies around the increased demand period just prior to Spring Festival. ( this could cause a spike in market pig prices)

What to watch for over the next few months!!!

• In February, the pig and corn ratio was 7.12:1; was 7.07:1 for March and was 7.63:1 for May. Currently, the ratio is 8.24:1. A pig to corn ratio of 6:1 is considered to be break even. With continued Government incentives and “huge profit margins”, pig expansion in China will continue.
  
  
• The wholesale price of pork in China has increased as well during the second and third quarters of this year (4 April was 20.41 RMB/kg ($3.21 US/kg); May 6thwas 20.61 RMB/kg ($3.24 US/kg); 3 June was 22.17 RMB/kg( $ 3.49 US/kg); 1 July was 25.51 RMB/kg($4.01 US/kg); 5 August was 25.97 RMB/kg( $4.08 US/kg) and 9 September 26.41 RMB/kg($ 4.15 US/kg). Both rising pig and thus pork prices have greatly affected the Consumer Price Index (CPI). The average wholesale price for pork has fallen about 3.7 per cent (27 October) since reaching the record peak of 26.44 RMB/kg ($ 4.16 US/kg) in mid-September. October pork prices are still up 45 per cent year over year.
  
  
• 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 6.1 per cent for September, 2011. This is a drop from the high of 6.5 per cent in July and 6.2 per cent in August. CPI for October is estimated to be from 5.5 per cent to 5.7 per cent and November is estimated to drop further to 5.0 per cent. The CPI is made up of about 30 per cent food found in the consumers’ basket. Pork is estimated to be about 1/3 of the food portion of the basket or in other words, about 10 per cent of CPI as a whole. Just to sense the impact that pork has on the CPI, reports show that food prices increased by 13.4 per cent in September versus one year ago. This has an impact of 4.05 per cent points. At the same time, pork rose by 43.5 per cent and this affects the overall CPI at a level of 1.24 per cent points.
  
  
• Results from the third quarter, indicate that total meat production (pork, beef, lamb and poultry) is more than 54.53 million tonnes. That is an increase of 0.2 per cent from the same period last year. Pork production reached around 35.68 million tonnes and this is a decrease of 0.6 per cent from last year. Pork still represents about 2/3 (65.4 per cent) of the total meat consumed by China’s consumers.
  
  
• Again looking at the results of the 3rd quarter, wheat output reached 126.27 million tonnes this year (up 2.5 per cent from last year) and rice harvest was 32.76 million tonnes (up 4.5 per cent from last year). The US Grains Council predicts that China will harvest 167 million tonnes of corn this year. This will be a bumper crop for this year, but the Council still estimates that consumption will exceed demand by about 40 million tonnes.
  
  
• China became a net importer of corn for the first time in 10 years. For the first 6 months of this year, China imported 3.5 million tonnes. By 2015, China could import around 20 million tonnes. Along with this, 3.7 million tonnes of corn held in government reserves was released into the market since September. This is felt as an attempt by the national government to monitor sales volumes more closely. The government may restrict new crop corn purchases by the main buyers, such as COFCO and China Grains and Logistics Corporation (CGLC) to keep feed prices stable. The government also may restrict corn processing projects to be able to counter rising prices. Many businesses ventured into deep processing because of the good profit potentials ( the average annual growth rate of deep processing rose at 20 per cent since 2000, while that of feedstuffs increased 1.26 per cent per annum during the same period). Because of the high profit potential, these processing companies are quite actively buying grain which in turn increased corn prices. A restriction in their purchases should keep feed prices stable. (As a note, about 4 million tonnes of corn is used for making ethanol in China).
  
  
• Although China’s domestic supply of pork is showing growth, imports of pork are expected to rise by 8 per cent in 2012. This is mainly due to rising demand. An USDA report suggests that pork output will reach 51.3 million tonnes for this year (4 per cent rise over 2010). Government incentives and/or subsidies to farmers contribute the most for this increase. However, demand will create pork imports to increase by about 8 per cent to 480,000 tonnes next year.
  
  
• Sichuan provincial government will provide 383.55 million RMB ($60.4 million US) for the provincial pig industry to increase pig production (27 October).
  
  
• The National Ministry of Finance recently confirmed the continuation of a 100 RMB ($ 15.7 US) subsidy for productive sows. This is based on per sow per year for all breeding sows on any scale of farm- large, specialized pig households and even backyard farms with only one sow).
  
  
• Chongqing Industrial and Commercial Bureau found Walmart in that city was selling "fake green pork" (mislabelling regular pork as organic pork). All 13 Walmart stores located in Chongqing were shut down for 2 weeks (11-25 October) and Walmart was fined 2.69 million RMB ($ 423,000 US) for the infraction.
  
  
• According to the Ministry of Agriculture, scaled pig production (greater than 500+ finishers per year) now accounts for 34 per cent of the total output of pig production in China.