Strong sentiment drives hog price rally, yet bearish factors remain

According to Mysteel's assessment, as of April 18, the national average price of DLY live hogs stood at Yuan 9.51/kg, up Yuan 0.34/kg from the previous day, the largest single-day increase since February. After two months of bottoming-out fluctuations, hog prices began to rise rapidly from April 15 onward, with market sentiment turning strong almost overnight and enthusiasm reaching unusually high levels.

This price increase is mainly attributable to large-scale enterprises actively reducing slaughter volumes. Having accelerated slaughter in the first half of the month amid deep losses, these enterprises have largely met their monthly slaughter targets. This, combined with strong market sentiment, provides solid short-term support. In addition, increased interest in second fattening and frozen pork storage has temporarily boosted demand, further driving prices higher. Based on this, some industry insiders suggest that before early May, prices will fluctuate within a narrow range with a slowly rising floor, potentially reaching Yuan 12/kg.

However, it does suggest that bearish factors have been largely exhausted and that average hog prices will trend higher month by month.

First, capacity reduction remains slow, and the breeding sow herd is still large. As of the end of the first quarter, the national breeding sow inventory stood at 39.04 million head, above normal levels. Moreover, productivity continues to improve (mainstream PSY at 26, for reference), with better farrowing and survival rates. This ensures ample hog supply for the year and offers little long-term support for price increases. Although low prices previously caused losses for farmers, the loss-making period was brief, and capacity reduction has fallen short of expectations, with no large-scale culling of breeding sows. Therefore, the supply pressure persists.

Second, slaughter weights have not yet fallen to a reasonable range, exacerbating supply pressure. Current national average slaughter weights still have room to decline, particularly in southwest and south China. As temperatures rise, market acceptance of heavy hogs declines. With supply increasing while demand weakening, the prices are under continued downward pressure.

Third, demand growth remains constrained by the off-season for pork consumption. Household demand is weak and restaurant recovery sluggish, leaving end-user absorption capacity insufficient. At present, sentiment-driven support outweighs actual demand strength. Following such a sharp price rally, end-user uptake is limited, and there is a real risk that slaughtering losses could lead to lower, rather than higher, operating rates, turning sentiment bearish.

Fourth, the sustainability of short-term positive factors is questionable, and supply pressure is merely deferred. The durability of second fattening, frozen pork storage, and market sentiment is uncertain. These factors do not truly relieve supply-side pressure; they merely postpone it, increasing risks going forward. Once prices fluctuate, a concentrated release of second-fattening hogs and frozen inventories would further impact the market. Moreover, bullish sentiment lacking fundamental support can easily reverse, triggering a price correction.

In summary, the sharp price surge and sudden shift to strong expectations represent a phased rebound after prolonged bottoming-out volatility. The sustainability of current positive factors is questionable, and bearish factors have yet to be fully exhausted.

The underlying market condition for hogs this year remains one of strong supply and weak demand against a backdrop of high capacity. As the market transitions from off-season to peak season, while prices are unlikely to revisit earlier lows, a premature and rapid price rally will likely aggravate supply-side pressure, posing ongoing risks.

This could limit both the magnitude and duration of peak-season price increases, potentially even leading to a scenario of "weak prices amid peak demand", contrary to earlier expectations that December would see the year's price high, resulting in prices falling rather than rising.