A flash in the pan or take off in situ, how will the price of pigs go in the future?

It is worth noting that the new regulations on pig transportation issued in the eastern part of China recently. Shanghai, Jiangsu, Zhejiang, Anhui, Shandong and Henan provinces and autonomous regions issued the "Letter on Assisting the Eastern Region to Implement Relevant Measures for Pig Transportation". Starting from December 1, 2021, the six provinces (municipalities directly under the Central Government) in the eastern region will no longer accept more than 30 kilograms of live pigs from outside the eastern region to enter the eastern region for fattening, and will no longer accept live pigs from outside the eastern region that have not been "point-to-point-point-to-to-to-to-to-point-to-to-to-to-point.

The pig-to-grain ratio continues to be below the break-even point, and pig farming profits have fallen into deep losses.

Farming profits are the core factor in determining the supply of pigs, **pork prices change about half a cycle. The pig-to-grain ratio can visually reflect the cost-benefit comparison relationship of pig farming.

Due to the increase in the cost of the pig breeding industry, on June 9, the National Development and Reform Commission and other five departments jointly issued the "Improve the government's pork reserve adjustment mechanism to do a good job in the pork market to ensure supply and price stability work plan", the pig breeding break-even point corresponding to the pig-to-grain ratio, from the previous 6:1 to 7:1.

Since May 14, the pig-to-grain ratio in 22 provinces and cities has been running below the break-even point, resulting in low profits from pig farming.

According to the data of the National Development and Reform Commission, on September 15, the expected profit of pig breeding in China dropped to -715.8 yuan/head, which is * * point since the data were available in 2015. The following 2 months of pig farming is expected to stabilize marginally, but is still at historically low levels.

The current round of elimination of breeding sows has begun, and the stock of breeding sows has reached an inflection point in July this year.

The stock of breeding sows determines the production capacity of pigs. From the perspective of pig production cycle, it takes about 10-14 months for breeding sows to give birth to piglets after breeding and pregnancy, and then to form slaughter pigs after conservation and fattening.

However, with the improvement of breeding technology, indicators such as PSY (the number of weaned piglets provided per sow per year) and MSY (the number of fattened pigs per sow per year) have increased, and the time for breeding sows to stock * * pork prices has a trend of shortening.

From the historical data, there is a negative correlation between the sow stock and pork price year-on-year, and the correlation coefficient between the sow stock and pork price with a lag of 12 months is -0.65. According to the Ministry of Agriculture, in July 2021, China's sow stock fell 0.5 percent month-on-month, ending 21 consecutive months of growth, and the decline further widened to 0.9 percent in August, marking the beginning of this round of the process of removing sows.

Chunjiang Plumbing Duck Prophet, the production capacity of listed companies has already begun at the beginning of the year. In the case of four hog-breeding enterprises, namely, Makahara, Wen's, New Hope and Zhengbang Technology, the total value of their biological assets peaked at the end of 2020 and then began to decline quarter by quarter, with the first, second and third quarters being -3.7 percent, -4.6 percent and -10.5 percent, respectively.

The current pig inventory is at an all-time high, and a new round of column removal is imminent.

Compared with the previous rounds of pig cycle, the current pig cycle has the characteristics of large increase, fast speed and duration. Under the super pig cycle, farming profits climbed and farmers' capacity expansion exceeded historical levels.

In June this year, the stock of breeding sows reached a current high of 45.64 million, up 133.1 percent from the September 2019 low.

It is the early excessive filling of the column, resulting in this year's pig storage column and column continued to be at a high level, pork prices continue to fall. As of the third quarter of this year, the number of live pigs on hand reached 0.44 billion, which is the level of the same period since 2014. Such a high number of live pigs exceeds the market demand and needs to be further removed.

The seasonal recovery does not change the nature of oversupply. This short-term rise is not sustainable. It is expected that pork prices will fall again after the Spring Festival.

At present, pork prices in mid-October after the bottom showed a short-term recovery, mainly driven by demand, one is the substitution effect caused by too high vegetable prices, the second is to enter the peak season of pork consumption, residents began to reserve winter food, the production of bacon sausage, while the country opened the second round of storage work.

However, the pattern of oversupply in the live pig market has not changed, and pork prices may bottom out again after the Spring Festival.

Pork prices are still bottoming out in the short term and are expected to reach an inflection point in the second half of 2022. The fundamental driver of pig supply **is breeding profits, the current pig farming industry has fallen into a deep loss state, can breed sows began to de-chemical.

Since June this year, pig farming has been at a loss as a whole, with farmers nationwide losing 76.7 per cent in September. The stock of breeding sows has reached an inflection point in July. According to the historical experience of 10 months of pork prices, pork prices may stabilize in the second half of next year.

As a very important sub-item of CPI, pork prices and CPI trends are highly correlated. Since 2008, the correlation coefficient between pork prices and the CPI index has reached 0.68, much higher than that of other commodities in the CPI basket. At the same time, beef, lamb and poultry can also supplement protein for the human body and are optional substitutes for pork.

When pork prices rise, the relative prices of beef, lamb and poultry are lower and demand rises, and prices are expected to rise with the start of the pig cycle.

According to the law of price changes in the pig cycle, pork prices will remain volatile at around 22 yuan/kg from the fourth quarter of this year to the first half of next year, and subsequent pork price changes in three scenarios: in a neutral scenario, it will rise to 30 yuan/kg by the end of 2022. Around, the year-on-year pull on CPI reached 0.7 percentage points;

In an optimistic scenario, if the production capacity is reduced beyond expectations, the price of pork will rise to about 35 yuan/kg by the end of 2022, which will pull the CPI by 1.2 percentage points year-on-year; in a pessimistic scenario, the price of pork will rise slowly in the second half of next year. To 26 yuan/kg, the year-on-year pull of CPI is 0.4 percentage points.

Be alert to the increase in the cost of living and the risk of stagflation after the restart of the pig cycle. On the one hand, in 2022 PPI or continued to CPI conduction, pig cycle bottom recovery, overlay CPI low base and other factors, CPI year-on-year has the possibility of breaking through 3%.

Price pressures are likely to come to the fore or constrain monetary policy in the second half of next year. On the other hand, the current marginal propensity to consume of Chinese residents has not yet returned to pre-epidemic levels, and the income of some employed persons in some industries such as catering and tourism has not yet fundamentally improved.

At the same time, there will be downward pressure on exports in the future, and employment pressure may increase. It is necessary to take precautions to continue to secure the bottom line of people's livelihood and social security, and appropriately increase subsidies for low-and middle-income groups to avoid the impact of rising prices.