The impact of pig futures on the industry

Recently, affected by factors such as the seasonal rebound in consumption and the obstruction of the circulation of frozen products, the national pork price has risen significantly

On January 8, China's first live-delivered futures variety-live pig futures was officially listed for trading on the Dalian Commodity Exchange

Significant recovery of pig production

"The main factor that determines the price of pork is supply and demand.

So, what is the current domestic pork supply and price situation?

"China's live pig production has clearly recovered, but the overall supply is still tight

Monitoring data from the Ministry of Agriculture and Rural Affairs shows that from August to November 2020, the number of pig slaughters nationwide has increased month-on-month and year-on-year

Although the supply has not yet fully recovered to the normal level, the central reserve meat supply has been significantly increased

Recently, affected by factors such as the seasonal rebound in consumption and the obstruction of the circulation of frozen products, the national pork price has risen significantly

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 the two aspects of supply and demand

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 China's largest agricultural and sideline product by market value, with a market size of trillions

In Chen Yanjun's view, it is still the fundamentals of pork supply and demand that determine the pig cycle

Data shows that since 2006, China has experienced 3 complete pig cycles, namely June 2006 to May 2009, June 2009 to April 2014, and May 2014 to May 2018.

"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.

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 are affected to varying degrees

The sharp drop in production capacity has caused the price of pigs to continue to rise rapidly, which is much higher than the previous cycle, and the rising cycle is short

According to data from the National Bureau of Statistics, by September 2020, the number of reproductive sows in the country has recovered to 38.

Zhu Zengyong believes that the short-term rebound will not change the long-term trend, and China's pig price has entered a downward cycle

The industry has hedging tools

"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
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The so-called futures hedging refers to the use of futures contracts as a temporary substitute for buying and selling commodities on the spot market in the future.
They carry out buying and selling operations in advance and lock 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
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In the long breeding cycle, epidemics, 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
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With the hog futures tool, when the price of hog futures is moderate, breeding companies can pre-sell the hog futures in the futures market equal to the number of hog futures to lock in profits in advance
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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
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The reporter learned from the Dalian Commodity Exchange that Muyuan, Wen's, Zhengbang Technology, New Hope, and Zhengda, the leading domestic pig breeding companies, will all enter the market to participate in the delivery of pig futures
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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 live pig futures
.