BEIJING (Reuters) - China’s top pig producers posted their highest ever profits in the three months to September, as soaring hog prices more than compensated for losses resulting from African swine fever.
The huge profits underline how the fatal pig disease, which has killed millions of hogs across Asia and left many small farmers bankrupt, has proved a major opportunity for the leading producers in the world’s largest but highly fragmented hog sector.
Muyuan’s net profit of 1.54 billion yuan ($218.88 million) was twice as high as its previous best quarter.
The sharp turnaround comes a year after African swine fever, an incurable pig disease, broke out in China and spread rapidly across the country.
The herd had shrunk by 41% year-on-year in September, pushing live hog prices to 30 yuan per kilogram in some provinces.
For large producers, even if they lost some sows to the disease, prices are so high now that they are still earning much more than before.
“Upstream hog breeders suffered losses in the first quarter of 2019. However, prices started to rise due to tightened supply from the second quarter, which helped the breeders turn profitable,” said Fitch Ratings in a note on Wednesday.
Hog margins averaged about 1,625 yuan per pig by the end of the third quarter.
“While production costs are basically the same, pig prices keep soaring. The growing spread is all profit,” said Mao Yifan, analyst with Industrial Securities.
The companies are also gaining market share after price volatility earlier in the year pushed many smaller farmers out.
Wens, which produced 22 million pigs in 2018 and had a market share of 3.2%, had increased its share to 3.8% by the end of September, said Becky Han, associate director of APAC Corporates at Fitch Ratings.
It is targeting a 10% share of the market, producing about 70 million pigs, by 2027.
With hog margins now at more than 3,000 yuan per pig in many southern provinces, profits will grow much more in the fourth quarter.
Zhongtai Securities analysts expect Wens to report full-year profits of 20.87 billion yuan, a fivefold increase on last year.
Muyuan profits will jump 10 times to 5.2 billion yuan, say China Merchants Securities analysts, and hit 30 billion yuan in 2020.
Even if the disease hits a small number of the companies’ farms, margins are so high that profits at the other farms will more than cover the losses, Darin Friedrichs, senior analyst at INTL FCStone, said last week.
Reporting by Dominique Patton. Additional reporting by Hallie Gu; Editing by Jan Harvey
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