Pig cycle failure what is the trend of pig prices in the future?

Pig prices have soared since 2015, driving up overall inflation, but the stock of pigs and sows has fallen for 40 months under the temptation of high profits, and the traditional pig cycle seems to be out of order. What is the reason behind the failure of pig cycle? What is the future trend of pig prices? What is the impact on overall inflation? As pig prices have a great impact on the trend of inflation in China, this topic will focus on these issues.

The pig cycle changes from normal to malfunctioning. The pig cycle generally includes large annual cycles and seasonal small cycles, both of which will be affected by the monetary environment. In the large cycle, rising pig prices stimulate farmers to fill the fence, and after the continuous increase in supply, pig prices fall, and then supply contraction pushes up prices, entering a new cycle again. The small cycle is mainly affected by the consumption habits of Chinese residents and fluctuates seasonally within one year. The changes of pig prices and stocks in 10-14 years are very consistent with the characteristics of the traditional pig cycle. But since March 15, pork prices have bottomed out and rebounded, rising sharply from a low of 23.5 yuan / kg to a high of 32.5 yuan / kg, while sows have rarely fallen all the way from a high of more than 50 million to the current 37.52 million. The stock of live pigs has also fallen sharply from a high of 470 million to a low of 367 million. That is to say, in the case of a sharp rise in prices, farmers are cutting production capacity on a large scale, and the regulation of the pig cycle has failed.

Why does the pig cycle fail this time? Take the initiative to remove production capacity: successive years of breeding losses. Pig prices peaked in 2011 due to a large increase in production capacity due to high profit margins and increased government subsidies. The profit margin of pig raising is also decreasing, and the loss alone has been more than 2 years, which greatly reduces the production enthusiasm of farmers, and some even permanently withdraw from the market, which is an important reason for the decline of pig and sow stock. Passive capacity removal: the threshold of environmental protection is raised. Over the past 15 years, policies such as the new environmental protection law and the "Ten articles on Water" have been implemented one after another. in order to meet the environmental protection standards, various provinces have successively set up prohibited breeding areas and constantly shut down breeding farms and professional farmers in the prohibited areas. In 2015, environmental protection bans in 10 provinces alone affected more than 20 million pigs, accounting for about 2.8 percent of the country's total, according to the Ministry of Agriculture. The ban on environmental protection is an important reason for the great decline in the stock column in the past 15 years. Structural change: transformation is a drag on supply. In the past two years, due to the strengthening of the reform of large-scale farming and the tightening of environmental protection policy, the pig raising mode has changed from scattered breeding to large-scale, and the withdrawal speed of scattered farmers is faster. However, due to the higher land use approval, professional requirements and entry barriers, and the slow growth rate of large-scale pig farming, there is a phased decline in the process of the transformation of the breeding mode.

What is the trend of pig prices in the future? Big cycle: pig prices are high and the downside may increase. First of all, the consumer demand for pork is relatively stable, so the demand side generally will not become the main reason to dominate the long-term pig price trend. Secondly, at present, the profits of raising pigs are at the highest point in history, the enthusiasm of raising pigs has been greatly improved, and farmers have a longer reaction time to the environmental protection policy, and the number of breeding sows has been basically stable since March 16, indicating that production capacity and supply may be in the bottom stage. In addition, large-scale farming improves the efficiency of pig farming and ensures production capacity at a lower level of storage. Small cycle: seasonal factors are dominant, and may rise slightly in the short term. Judging from the situation over the years, the relationship between supply and demand tends to be tense from August to October, and pig prices will pick up seasonally, coupled with the lagging impact of flood and high temperatures, pig prices may still rise in the short term. However, from the perspective of the large cycle, pig prices are already high, and even if they rebound in the short term, they are expected to be very limited.

The thrust of pig prices is weakening and inflation is free of worries in the short term. Taking into account the influence of seasonal factors, we assume that pig prices in the coming year will change according to the average trend over the years. The results show that year-on-year growth in pig prices will decline from a high of 33.6% in May and is expected to be negative in the second quarter of next year, and the boost to CPI will fall from 0.77% to a negative range. Although the push of pig prices on inflation will increase in the fourth quarter due to a low base, the intensity may not be the same as that in the second quarter. And given that the long-term downturn is likely to be large, the effect of pig prices on inflation is likely to weaken faster than expected. Overall, due to the large month-on-month increase in food prices in the same period last year, we expect CPI growth to decline slightly in August, and CPI is expected to stabilize at around 1.8 per cent in the third quarter, but there is a risk of a slight rebound in the fourth quarter.