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Losses reported in Chinese hog sector

China's hog producers are losing record amounts of money and are cutting back on soybean meal and corn, according to a news report.

Farmers are losing an average of US$75 on every hog they slaughter, which is the worst loss on record, says a Reuters story.

That compares to an average profit of $157 per animal a year ago.

Producers have overbuilt the hog herd coming out of the African swine fever crisis, which peaked in 2018. Meanwhile, pork demand is down in China due to continuing COVID-19 restrictions that have caused restaurants to close.

Those two factors combined with soaring feed grain costs have resulted in a flipflop in fortunes for the country's hog producers.

"With feed making up two-thirds of the cost of raising pigs, the industry is cutting back on protein-rich soymeal and replacing the best quality corn with cheaper and often lower-quality substitutes," stated the Reuters story.

Farms have switched to maintenance feeding diets.

"Our nutrition division is working on the best recipes with as little soymeal and corn as possible," said a manager of a large pig-breeding operation in southern China.

Rations are increasingly incorporating cheaper ingredients including rice, rice bran, broken rice, coconut meal and sunflower meal, according to the Reuters story.

That would be a concern for feed grain and oilseed markets because China's strong buying program was one of the main factors behind the ongoing commodity bull-run, combined with production problems around the world.

Bill Lapp, founder of Advanced Economics Solutions, said maintenance diets make no sense because feed costs remain but with no gain in hog weight.

"That doesn't seem economic to me," he said.

He doubts the switch away from corn and soybean meal is so pronounced that it would affect import volumes.

"It's hard to believe it would but I guess anything is possible," said Lapp.

He agreed that if hog farms are losing money, they may decrease protein content and increase carbohydrates in feed rations, but that isn't always an easy proposition.

Cheap alternative feed ingredients like soy hulls, wheat middlings and distillers grains are already being used for something.

"They all have a home today," said Lapp.

An article in the Dim Sums Blog corroborates the assertion in the Reuters story that China's hog farmers are losing money.

It cites a Daily Economic News report stating that annual reports from 17 of China's largest hog companies show combined losses of a "shocking" $7.9 billion.

"Industry reports say hog prices are not expected to stage a recovery until 2023," according to Dim Sums.

Yet a number of those companies say they still intend to boost production in 2022, which could help offset any shift away from corn and soybean meal in hog rations.

China's agriculture ministry and five other government agencies have ordered banks to "keep the money spigot open" for pig farms, said Dim Sums.

They issued a hog industry stabilization document in 2021 ordering banks to continue lending to hog farms and slaughter houses and to not call in loans when those companies experience financial troubles.

That is why the hog companies are able to continue financing expansion despite enduring some of the worst losses in the history of the industry.

Par : Sean Pratt (30/03/2022)

Source : (The Western Producer)

Photo : Reuters (tirée de l'article original)

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