Looking at the size of the breakdown of the inventory for October 2011-breeding stock was around 48.80 million and total on farm inventory was around 475.16 million (as compared to September 2011-breeding stock was around 48.1 million and total on farm inventory was around 465.57 million and 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 475.16 million head for October is up 3.65 per cent from last year while the October sow inventory is up 1.10 per cent from last year (year over year). During the past year, since September 2010, 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 steady increase in sow inventory has occurred since March 2011.

Since mid-September, the average price of slaughter pigs has declined about 15 per cent to the current price of 16.39 RMB/kg liveweight (approx. $ 2.57 US/kg liveweight). If you look at year on year prices for November, 2011 versus November 2010, one can see that pig production in China is quite profit supportive with reasonable production.

Profit margins continue to show good returns. Estimated profit margin for June 2011, was around 770 RMB/market pig -$119.10 US and 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 was estimated to be 659 RMB/market pig -$103.62 US. Profit margin for November is estimated to be 447 RMB/market pig -$ 70.06 US.

Price /profit predictions for 2012 include: pig price of 16.6 RMB/kg liveweight ($ 2.60 US/kg liveweight); average price of corn at 2,500 RMB/tonne ($ 391.85 US/tonne); pig and corn ratio of 6.93: 1 and average profit of 350 RMB/market pig ($ 54.86 US/ market pig).

Short term scenario:

Industry estimates that pig prices will not fall to much further for the next 3 months (through Spring Festival (23 January 2012) and many predict that the price will stabilize to around 18 RMB/kg liveweight ($2.82 US/kg liveweight). There are several recent trends to support this optimism.

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. Relative 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 (especially 10 day old pigs). Initially the disease was noted in the southern part of China. During December, 2010 to March 2011, the problem was prevalent. Many sows were rebred in the Spring of 2011. This has caused part of the decrease in the current price as the market pigs from the rebred sows are now coming to market (predicted large short-term slaughter). However, this increased supply may taper off over the next few months.
   
   
5. Because of the fear of the piglet diarrhea occurring again this December period, many farmers are selling their stock to avoid repeat losses.
   
   
6. Again, but more recently (July and August) in the North Central parts of China a similar problem has occurred as a wet July and August, lead to more farms having a high piglet 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).
   
   
7. Generally, the demand for pork increases during the winter months especially during the holidays surrounding Spring Festival.

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. In September, the ratio was 8.24:1. Now, in October, the ratio is closer to 7.45:1 per market pig. A pig to corn ratio of 6:1 is considered to be break even. With continued Government incentives and "now reasonable profit margins", pig expansion in China will continue.
  
  
• The Consumer Price Index (CPI) continues to be quite interesting for the National Government. Previously, when the pork prices were gaining, this rapid increase in pork, gained the attention of the National Government as it greatly affects the CPI. 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. Now with around a 15 per cent drop in pork prices since mid- September, the CPI is also decreasing. Currently, inflation is around 5.5 per cent for October, 2011. This is a drop from the high of 6.5 per cent in July, 6.2 per cent in August and 6.1 per cent in September. CPI for November is estimated to drop further to 5.0 per cent.
  
  
• 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 total meat production for China will be around 81.4 million tonnes (a 3 per cent rise year on year) for 2012. Pork output will reach 51.3 million tonnes, poultry will be around 18.7 million tonnes, beef will be around 5.70 million tonnes (note: beef consumption continues to decline) and sheep meat will be around 4.88 million tonnes for next year. 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 (not including pork by-products but this is only pork meat).
  
  
• For the first 9 months of this year, China imported 870,000 tons of pork and pork by-products—mainly offals. This represents an increase of 44.6 per cent from a year ago. Total imports for 2011 will slightly exceed 1 million tons which surpasses the previous high of 910,000 tons imported in 2008.
  
  
• Tight supplies this past summer created a “whole” in which major exporters such as the USA, Canada and Denmark were able to provide. Denmark last year provided about 40 per cent of the total imports. However, this year and for the first 9 months, about 60 per cent of the imports have been supplied by the USA.
  
  
• In early April, China authorized three Brazilian pork producers for the first time to export pork into China and Hong Kong. The Brazilian export association (Abipecs) considers the Chinese market could consume 200,000 tonnes/year. Well, it finally happened! On November 24th, 2011, the Marfrig Group sent the first shipment to China of hams, shoulders, bellies and necks to Shanghai. In January 2012, Aurora Cooperative projects that it will initiate a sale of 10,000 tonnes. Brazil usually exports about 50,000 tonnes/month and thus, the 10,000 tonnes along with a continuous demand by China, could be as much as 20 per cent of the total export potential from Brazil. (pork producers will be excited!!). This milestone export by Brazil (first time to export to China and Hong Kong) also creates an expectation that China would be Brazil’s second largest importer of pork in the next year.
  
  
• Clenbuterol created a scandal on 15 March when China’s largest meat producer, Shuanghui (Shineway Meats) sold pork that contained clenbuterol. Products were quickly removed from supermarket shelves as consumers saw another food contamination scandal similar to the 2008 melamine scare in the milk from most of the major milk processors in China. From this scare, Shuanghui has claimed total losses approaching 20 billion RMB (US$3.05 billion). As an update, the Provincial Higher Peoples’ Court in Henan (where the clenbuterol issue surfaced), recently prosecuted 114 people of which 113 received convictions-mainly prison terms, but one person received the death penalty (with a 2 year reprieve) and one person received a lifetime sentence. Several government officials also received prison terms.
  
  
• 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.
  
  
• Feed Industry Development Plan for the 12th Five Year Plan (2011-2015) out-lines a large increase in feed output, emphasizes quality and safety standards, encourages efficient use of feed ingredients, attempts to standardize industry practices and wants to "accelerate" consolidation. At the end of 2015, the Ministry of Agriculture expects that 168 million tonnes of compound feed and 26 million tonnes of concentrated feed will be produced by the feed industry.

With notes from: the pigsite.com, asian-agribiz.com, MOA, NBS, soozhu.com and various China Ministries.