China’s Headlong Rush into Hog Farms Sparks Boom-Bust Fears

(Bloomberg) -- Investing in Chinese hog farms may never have been so profitable, and that’s spurred fears that the boom may soon turn into a bust.

Record pork prices mean that breeders are potentially enjoying their highest returns ever, and that’s attracted many different kinds of investors to the industry, from a cement maker to state funds and banks, in addition to the ongoing expansion by traditional hog-farming companies.

These breeders such as Wens Foodstuffs Group, Muyuan Foodstuff Co. and New Hope Liuhe Co. are engaged in ambitious plans to build large-scale farms to regenerate the industry after it was ravaged by African swine fever. The idea is that the big farms will gradually replace the many smallholders and install best-in-class sanitation and safety measures to counter any future threat.

In thousands of years of Chinese history, pig farmers have possibly never made so much money, Song Weiping, vice president of Beijing Dabeinong Technology, told a swine conference in Chongqing this week. The profits have encouraged investors to embark on an aggressive expansion drive, which may eventually produce another super boom-and-bust cycle, Song said.

Profit Boom

Thanks to surging pork prices, for the first nine months, Wens Foodstuffs estimates that net income grew by as much as 38% on year, while Muyuan Foodstuff sees profit potentially expanding by more than 1,400%. New Hope Liuhe estimates income growth of as much as 63%, while a smaller player, Jiangxi Zhengbang Technology, expects net income to jump over 100 times. Breeder firm shares fell for a third day Friday, along with the wider market.

Muyuan, which has the most ambitious program, has said it plans to issue as much as 10 billion yuan of bonds to fund more than 20 new hog farms and slaughtering facilities after it joined state-backed poverty-relief and trust funds in a deal to build hog farms.

High-Storey Farms

A cement producer in the central province of Hubei last month started constructing two 17-floor buildings with a target to breed 600,000 hogs a year, according to the local government. In a separate move, Yu Ping, chairman of Tianzow Breeding, said it’s building high-storey hog farms in Heilongjiang province and in the city of Lanzhou, a new farm model to save land usage.

The country’s top 20 hog companies have plans for a combined capacity to feed 400 million hogs, or more than half of the 700 million hogs slaughtered in a normal year, Ji Chongxing, vice president of New Hope Liuhe, told the conference. The government may cap growth in hogs in its next five-year plan, shifting away from current incentives to encourage breeding, he said.

The agriculture ministry has said hog herds have already recovered to 80% of their normal level and the country will boost its frozen pork reserves to ensure protein supplies. The recovery of the herds, and frequent release of state pork stockpiles, have also helped cool prices of the staple meat, a major driver of food inflation, according to the National Bureau of Statistics.

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With assistance from Bloomberg