X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We write for you

It’s a public service and we refuse to erect a paywall and force you to pay for truth. Instead, we ask (nicely and often) that those of you who can afford to, become a Maverick Insider and help with whatever you can. In order for truth not to become a thing of the past, we need to keep going.

Currently, 18,000 (or less than 0.3%) of our brave and generous readers are members; which says a lot about their characters and commitment to our country. These people are paying for a free service in order to keep it free for everyone.

They are the true South AfriCANs.(Sorry, we couldn’t help ourselves.)

Support Daily Maverick→
Payment options

China’s pig farmers mired in boom-bust cycle

Business Maverick

Business Maverick

China’s pig farmers mired in boom-bust cycle

Pigs stand in a holding pen at a wholesale market in Nanning, Guangxi province, China, on Monday, Sept. 16, 2019. A protracted U.S. trade war, protests in Hong Kong, soaring food prices and the slowest economic growth in decades are among the many problems facing Chinese President Xi Jinping as he prepares to celebrate 70 years of Communist Party rule. Photographer: Qilai Shen/Bloomberg
By Bloomberg
13 Jun 2022 0

With pork the most popular protein on Chinese tables, pig breeding can be very profitable with gross margins rising above 30% for some producers when there’s a shortage, driving farmers to expand capacity. But the boom in pig prices faded earlier than farmers expected.

Once every three to four years, pig farmers in the world’s largest producing country find themselves trapped in an unforgiving market that pushes some over-leveraged breeders to the brink of a debt crisis.

Jiangxi Zhengbang Technology Co, the second-largest pig supplier among Chinese listed companies in 2020, just reported 542 million yuan ($81 million) of overdue commercial bills, becoming the latest producer to show the financial stress of the boom-bust cycle. The nonpayment comes after it lost about three billion dollars since the start of last year as local hog prices halved.

“Zhengbang expanded its capacity too aggressively at the wrong time and found it hard to manage the situation when hog prices tumbled,” said Lin Guofa, head of research at consultancy Bric Agriculture Group.

With pork the most popular protein on Chinese tables, pig breeding can be very profitable with gross margins rising above 30% for some producers when there’s a shortage, driving farmers to expand capacity despite soaring costs. Still, even for the top producers, it’s not always easy to follow the right beat.

China's hog market is subject to volatile cycles

China’s top five listed hog breeders recorded more than 39 billion yuan of net losses last year alone. Zhengbang represented just under half of that, while Wens Foodstuffs Group contributed about a third. Other companies that posted losses included Tech-Bank Food Co. and New Hope Liuhe Co.

Tight liquidity is a common challenge in the industry. In Zhengbang’s case, a 1.6 billion yuan convertible bond maturing in 2026 is facing requests for early redemption this week. In addition, Tech-Bank Food told investors at the end of April that it was negotiating with a key supplier to delay some payments and that the top priority will be ensuring secure capital flows.

Zhengbang Technology sold about 5.5 million pigs in 2018, when a long price slump hurt breeders, leading Chuying Agro-Pastoral Group for instance to default and offer to pay bondholders with ham. Chuying was eventually delisted from the stock market and its bondholders are yet to get their money back.

Just three years later, Zhengbang had almost tripled its output capacity to 15 million pigs with total assets doubling after the company built and leased more farms and increased the amount of livestock it was breeding.

Share slump

Still, the expansion didn’t bring the intended good fortune, only trouble. The boom in hog prices after African swine fever devastated herds faded earlier than farmers expected. Zhengbang not only had to grapple with declining revenue, but it also booked losses from asset and inventory depreciation.

Zhengbang Technology’s shares slumped to the lowest intraday level since 2018 on Friday, but have since recovered some poise. The company did not reply to a Bloomberg email seeking comment on its debt issue.

In December, Zhengbang signed a debt-to-equity swap with the Jiangxi branch of China Cinda Asset Management Co., a leading distressed debt manager. And three months ago, a key Jiangxi state-owned company agreed to provide 5 billion yuan of financial support to Zhengbang Technology’s parent.

Despite those efforts, the company still had 40.7 billion yuan of liabilities on its balance sheet at the end of March, only just covered by its total assets, according to its financial report. While hog prices are now recovering, offering a chink of light, the future may hinge on whether it can obtain more cash from asset disposals and receive timely government support.

“Don’t be obsessed with pig prices and gamble over them,” said Lin from the Bric consultancy. “Focus on how to raise pigs more scientifically, on how to cut costs and optimise management. That’s the way to live through the cycle.” BM

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted