Pork price may rise and drive up CPI

Analysts even suggest drought in US could lead to shortages by early 2013

The price of pork in China is likely to edge higher in September until the end of the year, driven by a surge in world grain prices as a result of a record drought in the United States, and an end to a current domestic over supply of pigs, according to leading industry experts.

However, by early next year, some Chinese farmers could be facing losses because of the double pressure, meaning possible pork shortages.

China is the world's biggest meat consumer, and pork consumption is expected to hit 52 million metric tons this year, according to the latest industry figures.

The price of pork in the country is determined by a delicate balance of conditions involving the price of feed, the number of pigs, the levels of imported pork products, and domestic consumption at particular times of the year.

According to data released on Thursday by the National Bureau of Statistics, the price of pork dropped by 18.7 percent year-on-year in July, driving down China's overall CPI by 0.71 percentage point to 1.8 percent, compared with 2.2 percent in June.

But Ma Chuang, deputy secretary-general of the Chinese Association of Animal Science and Veterinary Medicine, told China Daily that he expected pork prices to start rising again "from late August or early September as domestic pork consumption rebounds in the coming months, cutting the current oversupply" of animals in the market.

Feng Yonghui, chief analyst at Soozhu.com, the specialist online pig market monitoring and analysis service, added that the ongoing US drought - the worst in more than 50 years - was also likely to drive the prices up, after a big spike in the prices of corn and soybean, both key feed for pigs.

"The hikes in corn and soybean have lifted the feed price to a historic high and could worsen losses for Chinese pig farmers," Feng said.

"But pork price growth in the following months will be relatively stable, because of the sufficient live pig populations here."

Ma added that China's pig farmers have also reported that the weakened economy had has affected pork consumption over the past four months, but that the oversupply should keep prices reasonably flat until the end of this year.

He predicted that pork prices will grow much faster in 2013 than for the rest of this year, which will "surely affect China's overall CPI volatility".

Chow Jean-Yves, a senior industry analyst with Rabobank International, explained that the US drought will be especially hard-felt in China as the country is world's largest importer of soybeans, with its dependency on such imports increasing by around 80 percent in recent times.

"China is expected to import 57 million tons of soybean of its total 70 million ton consumption for 2011/2012. Of that 57 million, half will be imported from the US," he said.