China Pork Sales Tumbled Amid Lockdowns, By Jim Huang

A recent report by showed that pork sales dropped sharply at China’s largest online shopping marts. Taobao, TMall and JD collectively sold 414.81 tons of pork products in March, which was unchanged from February, but down 52.1% from year-ago period.

China is in the middle of its worst coronavirus outbreak since the pandemic began in 2020. The surge in COVID cases has prompted a range of city lockdowns. It is reported that 45 cities are now under some form of lockdown. J.P. Morgan analysts estimate that “areas with full or partial lockdowns accounted for about 25%” of China’s gross domestic product, according to a recent research note. Extreme lockdowns put a pause on nearly all social and business activities. Pork consumption is just one of the many victims.

On April 5, the Ministry of Culture and Tourism released data for the Qingming Festival holiday, which occurred in early April. During the three-day weekend, 75.42 million domestic trips were recorded, down 26.2% from a year ago. Trip data reflects the cumulative number of airfares, train tickets and bus tickets sold, excluding international travel. The Ministry estimated domestic tourism revenue during the holiday at 18.78 billion yuan, down 30.9% year-on-year.

Comparing to the pre-COVID year of 2019, this year’s traveler count and tourism revenue were down 32% and 61%, respectively. Not only that people travel less, but they also spend significantly less money when they do go on a trip.

Data source: China Ministry of Culture and Tourism. Traveler data in million trips, Revenue in billion yuan. US$1=RMB6.6 yuan.

Cash Hog Price Rebounds

In the past two weeks, cash hog price moves up to 15-16 yuan/kg from the 12-13 range it stuck since February. While the 3-yuan gain is encouraging, it is still 30% below the 23-yuan price averaged last April, and well below breakeven point for most hog producers.

China’s strict Zero-COVID policy turns the pork market upside down. On one hand, city lockdown, highway shutdown and community roadblock make it extremely difficult to fill customer orders. On the

other, hog farms have difficulty obtaining feeds, piglets and other supplies to maintain production, while meatpackers may find workers unable to come to work due to lockdowns.

Reduction in meat sales forces meatpackers to cut down pig slaughter, which in return slows hog sales from producers. Recent price rise reflects short-term supply and demand interruption. It may not sustain once lockdowns are lifted.

Hog and Sow Stock Down, But Hog Output Continue to Grow

China Statistics Bureau reported that at the end of March, hog stock was 422.5 million nationwide, down 5.9% from December, but up 1.6% from last March. Sow stock stood at 41.9 million, -3.3% and -3.1% from last December and March, respectively.

Current sow stock level is -8.3% from the peak reached last June. Liquidation appears to come entirely from cash-strapped small farms.

Q1 hog sales were 195.7 million nationwide, up 14.1% year-on-year, according to the Bureau. As predicted in earlier reports, Large hog farms did not slow down expansion. China’s Top-10 producers sold 195.7 million hogs, up 55.6% from Q1 2021. The growth rate is nearly three times higher than that of the national average.

In 2022, COVID surges across China have severely impaired the pork retail markets. Meat consumption is very weak due to the loss of consumer income. High retail meat price depresses consumption as it comes with high delivery cost.

Strict restrictions on movement by human and cargo are intended to cut off virus spreading. As a result, pork shipping and handling cost more than doubled in many places. The price differential between hog producing regions and consumption regions widened significantly. Once lockdowns are lifted, as we expect this to occur in May or June, an oversupply of large hogs could flood the market, pushing further pressure on cash market price.

Overall, the pandemic will have a considerable impact on hog and pork prices in the remainder of 2022. While we expect pork supply to decrease in the second half, weakness in pork consumption may be the dominant factor impacting price.

There is a real risk of recession in China. China Caixin PMI index is 47.4 in April, down from 49.5 in March and 50.2 in February. Service sector activity index is 40.0, 46.7 and 50.5 for the same period, respectively. The months-long lockdowns have put millions of small businesses out of business, and tens of millions of people out of a job. They may not get any relief after their cities reopen.

Furthermore, a record 10 million college students are graduating in China this summer, where the job market is the worst in decades.

Last month, China Statistics Bureau reported an initial reading of Q1 GDP at 27.0 trillion yuan, up 4.8% from last year. A few days later, the Statistics Bureau of Guangdong Province reported GDP of 2.85 trillion yuan, up only 3.3%.

Guangdong is the biggest economic engine in China. Its GDP, if treated as a country, would rank No. 8 in the world, ahead of Italy and Canada. The Guangdong reading, 1.5% lower than the data put out by national bureau, may be closer to the reality of China’s economy.

Jim W. Huang, CFA

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