On August 21, China's National Development and Reform Commission announced that the country will soon implement central frozen pork reserve storage operations. What impact will this measure have on the pork market? Will prices recover?
**Pig-to-Grain Price Ratio Falls Below 6:1 Warning Threshold** **Government Initiates Emergency Storage of 10,000 Tons of Frozen Pork**
Government pork reserves serve as a crucial policy instrument for maintaining supply stability and price control in the live pig and pork markets, functioning as a leverage adjustment mechanism. When pork prices decline excessively, even falling below break-even levels, pork storage programs are activated to curb significant price drops. Conversely, when prices surge excessively, reserve pork is released to the market to prevent dramatic price increases.
The National Development and Reform Commission's decision to launch frozen pork reserve storage operations is primarily attributed to persistently weak pork prices. According to commission monitoring data, the national average pig-to-grain price ratio recently dropped below 6:1, entering the third-level warning zone as stipulated in the "Plan for Improving Government Pork Reserve Adjustment Mechanisms and Ensuring Market Supply Stability."
The "pig-to-grain price ratio" represents the relationship between live pig prices and corn prices, the latter being pigs' primary feed source, serving as a key indicator of breeding cost-effectiveness. This ratio uses 6:1 as the baseline break-even point - values above indicate profitability, while lower ratios signal losses.
In Sichuan province, the pig-to-grain price ratio has remained below 6:1 since April this year. Provincial monitoring data released August 21 shows an average ratio of 5.45:1, entering the second-level warning zone for excessive decline as defined by Sichuan's pig and pork market price control plan.
Following this year's Spring Festival, provincial pork prices have continued operating at low levels. Monitoring data shows that in July, the province's average pork price (including lean meat, ribs, skin-on hind leg meat, and spare ribs) reached 15.69 yuan per catty, rising 0.77% month-on-month but declining 9.84% year-on-year and 10.46% from year-end levels.
In July, provincial live pig slaughter prices averaged 7.5 yuan per catty, remaining flat month-on-month while dropping 19.35% year-on-year and 17.31% from previous year-end.
Farmers are experiencing the market downturn directly. A farm operator in Sichuan's Leshan City reports that 125-kilogram live pigs currently sell at 6.7-6.8 yuan per catty, barely reaching break-even levels. The farm operates under a "company plus family farm" contract breeding model with 5,000 head capacity, avoiding losses only through enterprise-guaranteed breeding fees.
Weak pork prices stem from multiple factors. Summer heat reduces meat consumption as residents prefer lighter diets. Additionally, school holidays decrease restaurant and outdoor dining, reducing pork demand. Earlier concentrated slaughter of secondary fattening pigs has increased market supply, creating a supply-demand imbalance that drives prices down.
On the same day the National Development and Reform Commission released its announcement, China Commercial Reserve Commodities Management Center Limited, the implementing organization for central frozen pork reserve storage, issued a notice planning competitive trading for 10,000 tons of frozen pork storage on August 25.
**Pork Storage Benefits Short-term Price Support** **Industry Capacity Reduction Still Requires Time**
Sichuan, China's largest pig-producing province with annual slaughter volumes around 60 million head, significantly influences pork market conditions. To ensure market stability, Sichuan introduced its pig and pork market price control plan in September 2021, establishing conditions for provincial pork storage and release.
Under the control plan, when the pig-to-grain ratio falls below 6:1, provincial authorities issue third-level warnings without activating temporary reserve storage. When ratios remain between 5:1-6:1 for three consecutive weeks, second-level warnings trigger interdepartmental consultations and temporary storage recommendations to the provincial government. Ratios below 5:1 prompt first-level warnings and formal storage activation proposals.
Sichuan has previously conducted multiple frozen pork storage operations, typically activated when pig-to-grain ratios drop below 5:1. With current provincial ratios at 5.45:1, provincial authorities haven't yet issued storage notices. What impact will central storage operations have?
Industry experts emphasize that effectiveness depends primarily on storage volume. With national annual pig slaughter around 700 million head, the current central storage of 10,000 tons frozen pork equivalent to approximately 200,000 slaughtered pigs can provide short-term price stabilization but offers limited impact given overall supply oversaturation.
Industry leaders note that while storage can temporarily curb price declines and provide market support, it cannot address fundamental supply-demand imbalances and overcapacity in the pig market. Current provincial prices for 125-kilogram fattening pigs stand at 6.8-6.9 yuan per catty, while most family farms require prices above 7 yuan per catty for reasonable profit margins due to breed, disease, and production efficiency factors.
**When Will Price Recovery Occur?**
To stabilize pork prices, national authorities have continuously promoted pig industry capacity adjustments throughout this year. In July, the Ministry of Agriculture and Rural Affairs convened meetings on promoting high-quality pig industry development, proposing "reasonable culling of breeding sows, appropriate reduction of breeding sow inventory, reduced secondary fattening, controlled fat pig slaughter weights, and strict control of new capacity expansion."
However, pig industry capacity reduction requires considerable time. Data shows that by the end of the second quarter, national breeding sow inventory reached 40.43 million head, representing 103.7% of normal capacity levels and reaching the upper limit of the green reasonable zone for capacity control.
This indicates substantial future reduction potential. Additionally, recent years have seen breeding enterprises enhance independent breeding capabilities, continuously improving pigs per sow per year (PSY) from pre-2018 averages of 18 head to approximately 24 head currently.
In the short term, pig production capacity remains oversupplied, with prices expected to continue low-level operations. Price recovery is anticipated next year.
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