Shrinking Profit Margins in China's Pig Farming Due to Rising Corn and Soybean Meal Prices and Falling Hog Prices

Introduction: Entering February, the profit margins of pig farming in China have been continuously squeezed. On one hand, hog prices are declining, leading to reduced income; on the other hand, rising prices of feed raw materials are increasing the cost of raising pigs. Calculations show that the falling hog prices are currently the core reason for the continuous reduction in farming profits, while the impact of feed costs is relatively limited. With the increase in supply, there is potential for prices of soybean meal and corn to fall, meaning that the impact on pig farming profits from cost factors may not be persistently negative.

Post-Spring Festival, Pig Farming Profits Continue to Decline

Monitoring data shows that pig farming profitability has continued to decline since February. As of February 8th, the average profit was 164.14 yuan per head, a decrease of 123.19 yuan per head compared to early February, representing a drop of 42.87%. After the Spring Festival holiday, the profit margin for pig farmers has been continuously compressed. This is due to both the continuous decline in hog prices, reducing revenue, and the rise in feed prices, increasing production costs.

Supply Exceeds Demand, Hog Prices Continuously Decline

Statistics show that pig farmers exceeded their January sales targets, with February plans seeing a month-on-month decrease of 13.27% in planned outflow volume. Based on effective outflow days calculated, the daily outflow volume decreased by 9.03% compared to January, indicating a decline in hog supply. However, after the Spring Festival, families mainly consumed existing stocks, leading to slow sales of pork products. The demand for hogs entered a traditional off-season, with post-holiday daily slaughter volumes of hog enterprises decreasing by up to 53.76% compared to pre-holiday levels, showing a more significant reduction in demand. The hog market is experiencing a situation where supply exceeds demand, causing hog prices to continue to decline. As of February 8th, national hog prices stood at 14.54 yuan per kilogram, down 1.07 yuan per kilogram compared to early February, a decrease of 6.85%. The decline in hog prices has led to a shrinkage in farming profits.

Rising Raw Material Prices Push Up Pig Farming Costs

The main raw materials in pig feed are corn and soybean meal, serving as important sources of energy and protein respectively. In February, prices of both corn and soybean meal showed varying degrees of increase, pushing up the cost of pig farming. Soybean meal is made from imported soybeans, and the quantity of imported soybeans arriving directly affects the supply of soybean meal. In February, domestic soybean arrivals were at seasonal lows, with an estimated arrival volume of around 5 million tons, preventing oil crushing enterprises from restoring operations to pre-holiday levels. Tightening supplies of soybean meal in the spot market supported continuous price increases for soybean meal. As of February 8th, the national average price was 3,548.00 yuan per ton, up 196.07 yuan per ton compared to February 5th, an increase of 5.85%.

After the Spring Festival, grassroots trading had not yet resumed, and downstream processing enterprises actively raised purchase prices, boosting corn prices in production areas. According to Sci99 data statistics, as of February 8th, the national daily average corn price was 2,053.45 yuan per ton, up 0.48% compared to February 5th. The rise in the main raw material prices of feed, such as corn and soybean meal, is another factor contributing to the shrinkage in pig farming profits.

Overall, the Impact of Declining Hog Prices on Shrinking Profits is Greater

Based on the current average weight of traded hogs being 123.15 kilograms per head, during February 5-8th, the average hog price declined by 1.07 yuan per kilogram, resulting in a profit loss of 131.77 yuan per head on the revenue side. From the cost perspective, between February 5-8th, the average soybean meal price decreased by 196.07 yuan per ton, and the average corn price rose by 9.77 yuan per kilogram. Considering that soybean meal accounts for 18% and corn 71% of feed composition, with a hog-to-grain ratio of about 2.5, this resulted in a profit loss of 13.00 yuan per head on the cost side. Overall, the profit margins of pig farmers are continuously being compressed, although raw material costs have pushed up some costs, the primary factor is the reduction in revenue, i.e., the downward trend in hog prices.

Declining pig farming profits affect the enthusiasm of upstream farmers, and when profits continue to deteriorate, upstream farmers may reduce the inventory of breeding sows as part of capacity adjustment actions. From the perspective of raw material costs, while price increases have a limited impact on pig farming profits, there is insufficient momentum for further rises. With the expected increase in imported soybean arrivals in April, the tight supply situation for soybean meal will ease, with prices expected to decline. Meanwhile, as temperatures rise, traders' willingness to sell corn increases, potentially stabilizing or even lowering corn prices. Therefore, future impacts from cost factors on pig farming profits are unlikely to be persistently negative. (Source: Sci99)