Chinese pig prices are no longer flying high

After two years of soaring pork prices, China now faces the opposite problem: a depressed market for the staple.

Pork prices in the world’s biggest market have tumbled more than 56% since January, after two years in which many of China’s hog farmers were struggling to control the spread of African swine fever.

The disease isn’t harmful to humans but is highly contagious and deadly to hogs. At one point, the country’s pig population was down by about 40% from a year earlier, resulting in pork shortages and forcing China to import more meat from abroad.

Chinese farmers spent much of last year rebuilding their herds, before domestic pork supplies normalized and prices began sliding. China’s hog population now stands at about 439 million, up from 370 million last year. In September, the wholesale price of pork was 20.24 yuan, the equivalent of $3.13 a kilogram, its lowest level this year, according to data provider Wind.

A number of factors have depressed prices. Farmers who fattened their pigs as they waited for a recovery in prices rushed to sell their heavy hogs when prices declined earlier this year. New outbreaks of African swine fever in parts of the country also caused some panic selling, as farmers feared the disease would affect their hogs.

Analysts say a strong rebound is unlikely even as the Lunar New Year, one of China’s biggest holidays, approaches in early 2022.

Pan Chenjun, a senior analyst at Rabobank, said she expects only a mild rebound in prices in the coming months, even though the Lunar New Year holiday is typically a high season for pork consumption in the country. China’s zero tolerance toward Covid-19 has restricted travel and group dining, which will continue to weigh on hog prices, she said.

Pork prices have been below the break-even point for producers for half a year now, Ms. Pan added. The hog-to-grain ratio, one indicator of profitability in raising pigs, has fallen in recent months. Grain prices also rose due to strong demand.

China’s state planning agency bought pork for reserves in an effort to help stabilize prices after China’s National Development and Reform Commission warned in late June that the ratio had entered a level of “excessive decline."

China’s live hog futures, which made their debut on the Dalian Commodity Exchange in January, have also slumped in recent months.

The low prices are expected to drive out some smaller producers, which could lead to tighter supplies and higher prices. But a larger portion of China’s meat industry is now made up of big, well-capitalized companies that will continue to raise pigs through the depressed part of the price cycle, said Darin Friedrichs, senior Asia commodity analyst at StoneX.

“This added supply limits future price increases," he said.

Pork has long been a major source of protein in China. But a shortage and soaring prices in previous years—as African swine fever became the country’s worst outbreak of a livestock disease in decades—have changed behavior. When prices were at their peak, people switched to alternatives like poultry and fish, Mr. Friedrichs said.

Businesses like meat processors have also used poultry as a substitute when pork prices were high, and some of those changes could be permanent, said Rabobank’s Ms. Pan.