beyondbrics

China eats a lot of pork. Half of all the pork in the world, to be precise.

So it is good news in Beijing, then, that Chinese pork prices are finally coming down. The cost of a kilo of pork has fallen nearly nine per cent from the high reached in mid-September, to the relief of housewives and diners across the country.

But unlike the alarming prices slides of some other commodities which are seen as harbingers of economic stagnation, the fall in pork prices is welcome news. Expensive pork has been a stubborn contributor to inflation this year as the government has tried to get inflation under control. In almost every month this year, pork has contributed more than a hundred basis points to consumer price inflation, which dipped to 6.1 per cent in September.

So falling pork prices could mean fewer inflationary pressures ahead—which would in turn give the government more room to ease off of its policies of monetary tightening. In September pork prices were up 43.5 per cent from a year earlier. If that number falls next month it could make a big difference to the basket of foods that are calculated in China’s consumer price index. Pork is Rmb17.59 a kilo wholesale today, according to industry data.

So why are pork prices falling, and will it last? China’s pork prices move in a 36-month, boom-and-bust cycle because many pigs are still raised in small backyard farms by farmers who decide how many pigs to raise based on current pork prices. When pork prices rise, there tends to be a glut of pigs on the market about 18 months later. And vice versa when prices fall. The classic hog cycle.

But lower pork prices could be here to stay. Pork farmers and analysts have been predicting for several months that this year’s high pork prices will result in more pigs coming to market towards the end of this year. China’s pork-raising is also gradually moving from small backyards to large-scale farms, which will even out the price cycles as big farms usually raise a constant number of pigs.

However, Wang Xiaoyue, analyst at Beijing Orient Agribusiness, says some of the recent drop in pork prices is seasonal, and prices could bounce back.

“Mid-Autumn festival and National day are usually busy consumption periods. Demand jumps, like it has in past years, so households will rush to put their pigs on the market. In some regions there was an outbreak of disease, causing panic on the market and prompting households to put their pigs on the market even faster. . . . On the whole, this year’s supply shortage is still pretty big. On top of that, this concentrated rush of pigs on the market could create shortages later. Prices will probably start to recover in about two weeks.”

But as China’s leaders continue their fight against inflation, they are no doubt hoping that Mr Wang’s prediction is not correct, and that cheaper pork will be gracing Chinese diner tables for many months to come.

Related reading:
Pigs at front line in China inflation battle, FT
China set for a choppy time… with pork speculation, beyondbrics
China’s pork-flation problem, beyondbrics
Why Pork Prices Are Such a Big Deal in China, China Real Time
China’s next inflation challenge: sugar, beyondbrics