Chinese pig farmers are struggling to break debt expansion plans due to fluctuating pork prices

Breeders feed piglets on May 13, 2020 at a pig farm in Bijie, Guizhou, China.

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Beijing — Significant fluctuations in pork prices over the last two years have caused a sensation in China’s pig farming industry.

S & P Global Ratings said in a Wednesday report that it aimed to take advantage of the 2019 price doubling by allowing the five largest pork producers to grow rapidly and nearly triple their total debt in 2.5 years. rice field.

However, pork prices are falling as quickly as they are, putting pressure on producers who are currently in debt. The Consumer Price Index, released Thursday, showed that prices of China’s staple foods fell 44.9% from a year ago to August.

According to Florachan, associate director of S & P Global Ratings and author of the report, the outbreak of African swine fever, which began in 2018, has led to a rapid decline in pig production in China by about 40%.

“The high prices have invited large pork producers to produce more … they actively borrowed to fund the expansion,” she said.

Entrepreneurs and businesses were also in a hurry to take advantage of government subsidies. Zhejiang promised 1500 yuan or $ 231 per breeding sow..

Three years later, it created an oversupply. According to the Ministry of Agriculture’s wholesale price data, the price of pork has plummeted to about 20 yuan per kilogram ($ 1.40 per pound), about the same level as in early 2019. According to the data, the price of pork, which peaked in late 2019 and early 2020, was close to RMB 50 per kilogram.

Planning challenges

Unprecedented price volatility has complicated pig growers’ efforts to fund potential growth.

The S & P report points out that companies suddenly have very high levels of debt due to their limited ability to plan according to price forecasts. According to analysts, pig producer Wens Food Staff has a debt-to-earnings ratio (interest, taxes, depreciation, before amortization) of 1.9 times 2020 in the 12 months to June 30. It is said that it jumped more than 9 times from.

However, according to the report, Muyuan was less affected by African swine fever, and debt leverage increased slightly, from 1 to 1.3 times in the 12 months to the end of June.

Government efforts to stabilize prices

Pork is a major part of China’s diet, and the government will release meat from national reserves in times of shortage and, more recently, encourage consumption to combat oversupply to ensure adequate supply. I have been trying.

“recently [pork] Prices have fallen very rapidly, and [we] Everyone takes this opportunity Eat more pork, buy more pork,“Ma Youxiang, Deputy Minister of Agriculture and Rural Affairs, said at a press conference on September 1, which is a translation of CNBC’s statement from China.

The tone was different in 2019 when the authorities spoke Encourage the production of chicken and beef as well as pork to stabilize prices..

Equity investors also flowed in and sent stocks of the following major pig producers: New Kibo It surged 174% in 2019. However, after an additional 16% increase last year, inventories have fallen by more than 45% annually so far.

“A fall in pork prices will have a direct impact on corporate profits,” said Bai Shubo, New Hope’s head of securities. He said there was a high standard of imported frozen meat and a backlog of orders at the port. It remains weak.

That’s according to the CNBC translation of Thursday’s Chinese statement.

Bai said he is confident in the foundation of the company’s core business and that a true competitive advantage comes from efforts to improve efficiency. New Hope can also use pork futures and business development for slaughter and processing to hedge price fluctuations.

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According to S & P Chan, it takes about 9 to 10 months to raise a sow from pregnancy to sale.

When the price of pork rises, it is the remaining time for smallholders to enter the market.

In fact, there are currently few barriers to entry in the pig industry in China, and farmers are trying to embark on price fluctuations, resulting in price fluctuations of about 10 to 20 yuan every few years, Chan said. Stated. “Now [African swine fever] Barriers to entry may rise as environmental standards rise. “

Analysts predict that the market share of the top five producers is likely to rise to more than 15%, compared to 10.5% in June, compared to 30% of the top five players in the United States. increase.

Chinese pig farmers are struggling to break debt expansion plans due to fluctuating pork prices

Source link Chinese pig farmers are struggling to break debt expansion plans due to fluctuating pork prices

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