my country's first live-delivery futures variety appeared on the Dalian Commodity Exchange——
How pig futures affect the industry
Our reporter Huang Junyi
Recently, affected by factors such as the seasonal rebound in consumption and the blocked circulation of frozen products, the national pork price has risen significantly.
With the official listing of live pig futures on the Dalian Commodity Exchange, many people worry that futures will amplify pork price fluctuations.
In this regard, experts said that the main factor determining the price of pork is supply and demand.
At present, my country's pork demand is relatively stable. Although the supply is still tight, there is limited room for price increases in the future.
On January 8, my country's first live-delivered futures variety-live pig futures was officially listed for trading on the Dalian Commodity Exchange.
The impact of hog futures on domestic pork prices and the pig cycle has become the focus of attention of all parties. Will futures affect the trend of pig prices?
What impact will it have on the entire industry?
On related hot topics, the Economic Daily reporter interviewed industry experts and scholars.
Pig production has recovered significantly
"The main factor determining the price of pork is supply and demand. The listing of live pig futures will not directly affect the fundamentals of live pig supply and demand. At present, my country's pork demand is relatively stable, but the supply will be affected by many factors such as the new crown pneumonia epidemic, breeding profits, and policy guidance. Changes will change the fundamentals of domestic pork supply and demand and ultimately determine the trend of pork prices.” said Chen Yanjun, a senior expert in the futures market who had served as a senior analyst in the Zhengzhou grain wholesale market for many years.
So, what is the current domestic pork supply and price situation?
"my country's live pig production has clearly recovered, but the overall supply is still tight." Zhu Zengyong, an associate researcher at the Beijing Institute of Animal Husbandry and Veterinary Medicine, Chinese Academy of Agricultural Sciences, said in an interview with reporters.
Monitoring data from the Ministry of Agriculture and Rural Affairs shows that from August to November 2020, the number of pigs slaughtered nationwide has increased month-on-month and year-on-year.
However, from January to November 2020, designated slaughter companies slaughtered a total of 141.98 million pigs, a year-on-year decrease of 19.6%.
Although the supply has not yet fully recovered to the normal level, the central reserve meat supply has increased significantly.
In 2020, only October and November will not release frozen pork. A total of 38 frozen pork will be released throughout the year, totaling 670,000 tons.
Among them, on December 30, 20066 tons were put in and 11,241 tons were sold.
On January 7, 2021, another 20,000 tons of frozen pork was released.
Recently, affected by factors such as the seasonal rebound in consumption and the restricted circulation of frozen products, the national pork price has risen significantly.
From the perspective of weekly prices, the prices of live pigs and pork bazaars have rebounded from the 4th week of November and the 1st week of December respectively, and have been rising for 6 consecutive weeks and 5 weeks respectively.
In the last week of December 2020, the national average price of live pigs per kilogram was 34.8 yuan, a cumulative increase of 17.8%, a year-on-year increase of 3%; pork prices were 51.65 yuan per kilogram, a cumulative increase of 12.8%, a slight increase of 0.8% year-on-year.
Zhu Zengyong believes that the trend of national pig prices after the official listing of live pig futures on January 8 can be analyzed from both supply and demand.
In terms of consumption, the Spring Festival is the traditional peak season for consumption, but the increase in pig prices since December 2020 has restrained some consumer demand.
From the perspective of supply, as of November 2020, the stock of reproductive sows has increased year-on-year for 6 consecutive months, and the stock of live pigs has increased year-on-year for 5 consecutive months.
The Spring Festival is the peak of slaughter, and it is expected that the supply will be significantly improved with the slaughter of live pigs in the early stage.
Based on a comprehensive judgment, it is expected that the price of pigs in the Spring Festival of 2021 will be close to the level of the previous year's Spring Festival, and the room for increase is limited.
Supply and demand fundamentals determine the pig cycle
"Although some people worry that futures will amplify pork price fluctuations and disrupt the pig cycle, live pigs are my country's largest agricultural and sideline product by market value, with a market size of trillions. The impact of hot money on the trillions of futures varieties in the market is limited. "Chen Yanjun believes that relevant companies can concentrate on becoming bigger and stronger, and there is no need to worry about the listing of live pig futures.
In Chen Yanjun's view, it is still the fundamentals of pork supply and demand that determine the pig cycle.
The data shows that since 2006, my country has experienced 3 complete pig cycles: June 2006 to May 2009, June 2009 to April 2014, and May 2014 to May 2018. The duration is 36 months, 59 months and 49 months, and the rise time from trough to peak is 23 months, 28 months and 26 months respectively.
"This round of the pig cycle has been superimposed on the epidemic and prevention and control policies, environmental protection policies, live pig product distribution policies, and production cyclical factors from June 2018 to the present, which is very different from the previous cycles." Zhu Zengyong Say.
In Zhu Zengyong's view, the main distinguishing feature of this rising cycle that is different from the previous cycles is the decrease in the depth of the stock of live pigs and reproductive sows, and the production of all breeding entities is affected to varying degrees.
If there is no African swine fever epidemic, pork prices are expected to continue to decline in 2018, and there may be cyclical lows in the first half of 2019.
However, the African swine fever outbreak in August 2018 disrupted the normal fluctuation rhythm of the pig cycle.
Under the impact of the African swine fever epidemic, since October 2018, the stock of reproductive sows has fallen by more than the 5% year-on-year warning line and the decline has continued to increase.
As of September 2019, the country's reproductive sow stock has dropped by 38.9% year-on-year, and the pig stock has dropped by more than 41%.
The sharp drop in production capacity has caused pig prices to continue to rise rapidly, which is much higher than the previous cycle, and the rising cycle is short.
In terms of monthly average prices, pig prices have reached 16.87 yuan, 19.68 yuan, 20.45 yuan, and 37.11 yuan per kilogram since 2006. Pig prices in February 2020 have increased by 81.5% from the June 2016 peak.
It took only 14 months from the trough to exceed the price high of the previous round, while the previous two rounds were 25 months and 24 months respectively.
According to data from the National Bureau of Statistics, by September 2020, the number of reproductive sows in the country has recovered to 38.22 million, an increase of 24.1% over December of the previous year; the number of live pigs is 370 million, an increase of 20.7%.
Live pig stocks and reproductive sow stocks are signs of cycle turning, which means that pig production has bottomed out.
Zhu Zengyong believes that the short-term rebound will not change the long-term trend, and my country's pig prices have entered a downward cycle.
Industry has hedging means
"Although the listing of hog futures will not directly affect the fundamentals of domestic hog supply and demand, futures hedging provides a way for companies in the industry chain such as breeding, slaughter, and trade to evade price risks and maintain and increase value." Chen Yanjun said.
The so-called futures hedging means that operators use futures contracts as a temporary substitute for buying and selling commodities in the spot market in the future, and carry out buying and selling operations in advance, locking in prices in advance to avoid the risk of large fluctuations in market prices.
The pig breeding cycle is relatively long, and it usually takes about 10 months from the conception of the sow to the growth of the piglet for slaughter.
In the long breeding cycle, diseases, supply and demand, feed prices and many other aspects are full of uncertainties, resulting in the future price of live pigs may deviate significantly from expectations.
With the tool of live hog futures, when the price of live hog futures is moderate, breeding companies can pre-sell hog futures equal to their future slaughter quantity in the futures market and lock in profits in advance.
At the same time, hog futures can also help slaughter and processing links to buy in advance to prevent irrational increases in the price of hogs in the future.
The reporter learned from the Dalian Commodity Exchange that Muyuan, Wenshi, Zhengbang Technology, New Hope, and Zhengda, the leading domestic pig breeding companies, will enter the market to participate in the delivery of pig futures.
The Dalian Commodity Exchange issued a notice on January 5 to make specific arrangements for the delivery area, regional premiums and discounts, and other matters related to the delivery of pig futures.