Meanwhile, futures in the $8 billion lean-hog market on the Chicago Mercantile Exchange have surged 12% since the start of the year.
Pork exports by volume to China from Europe—the world’s largest pork exporter—shot up 78% in January from a year earlier, to 116,574 metric tons. This comes at a helpful time for Europe: Prices are 10.1% lower on year, as it continues to struggle with oversupply after losing Russia as a market in 2014 because of sanctions.
Historically, pork prices have been volatile in China. The sharp rise in prices over the last 12 months caught the pork market by surprise.
Better information has allowed farmers and corporate farms to respond to supply demands quicker, said HSBC economist Julia Wang, but “this time around, people got too pessimistic on pork prices and the de-stocking was material.”
Lower profits before the price run-up prompted many farmers to give up on pigs. That depleted stocks. Prices need to be six times the price of grain in order for farmers to break even. Now, the multiple is at a profitable 9.13 times, Chinese official data show.
Other farmers were forced out by tougher environmental rules. And an outbreak of disease earlier this year wiped out many of China’s piglets.
“There has been a continuous decline in hog and sow numbers, and in February it was still declining,” said Chenjun Pan, a senior industry analyst at Rabobank.
But Ye Zhenqin, a senior official of the Ministry of Agriculture, said at a news briefing last Thursday that prices will stabilize as supply increases.
Piglet survival rates will improve as the weather warms up. Furthermore, a number of large companies have expansion plans. This is expected to stabilize prices over the coming months and might even push prices lower as the end of 2016 nears.
“We expect prices to decline by around 15% toward the end of year because piglets that are born in the summer months have a higher chance of survival, which means by the third or fourth quarter of this year, prices will fall due to ample supply,” said Feng Yong-hui, chief analyst at swine industry research company Soozhu.
—Jenny W. Hsu
and Mark Magnier contributed to this article.
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