In 2016, hog prices have remained persistently high, boosting profits in the breeding sector but squeezing downstream slaughterhouses as consumption falls and slaughter volumes plummet. The high hog prices have left most slaughter enterprises on the brink of collapse.

The slaughter industry is struggling to survive.

Feng Yonghui, chief analyst at China's Hog Early Warning Network, told China Business News that the average domestic hog price is still around 20 yuan per kilogram, once peaking at 21 yuan. Hog prices have been high for nearly a year, making life quite difficult for slaughter enterprises.

With high hog prices, retail pork prices cannot rise in tandem, forcing slaughter enterprises to absorb the gap, resulting in extremely low profits. Feng Yonghui said there are 16,000 large-scale slaughter enterprises nationwide, and many are struggling to survive.

An industry insider described a county-level designated slaughterhouse owner who previously processed around 130 hogs per day, slightly more on holidays, earning 48 yuan per hog for slaughtering plus 2 yuan for pig blood, totaling over 6,000 yuan daily. After deducting labor, utilities, rent, and other costs, the monthly net profit was 50,000 yuan, quite comfortable in a small county. This year's hog price increase initially had no impact on the slaughtering business, but soon fewer hogs came in, with daily slaughter volumes dropping to 60-70, barely covering costs and yielding almost no profit.

At a wholesale market in Yiwu, Zhejiang, daily transactions of split carcasses exceeded 400 before, but after March this year, they fell by 30% to less than 300. The insider noted that data from some supermarket chains show that although sales revenue appears to have declined only slightly, considering that retail pork prices are much higher than last year, actual sales volume has shrunk by nearly one-third.

Feng Yonghui said that normal operating rates for ordinary slaughterhouses are typically 30%-50%, but now they have dropped to 10%-15%, with some plants running only 1-2 hours a day.

High hog prices reduce consumption. To compete for market share, slaughter enterprises are forced to cut prices, even at a loss, and then reduce hog purchases. With fewer hogs slaughtered, fixed costs per unit rise, creating a vicious cycle. If they cannot sustain after reducing production, they have to close. The insider said that this year, many local slaughterhouses have gone bankrupt, and even some major brands are struggling.

Shuanghui gives up profits to capture market.

Pork is an FMCG product, and market share matters more than profit. A person familiar with the market told China Business News that Shuanghui's cold fresh meat sales are growing rapidly against the trend.

Shuanghui is the largest slaughter enterprise in China, with nationwide distribution, though sales are higher in the north due to consumption habits and influence. Even in a southern region where hot fresh meat is still preferred, market sources say May sales rose from an average of 57 tons per day last year to 75 tons now. A distributor in Qingtian County, a new Shuanghui customer this year, had been in the slaughtering business for nearly 20 years. This year, he found the cost of sourcing hogs increasingly high, and after accounting for losses, it was more profitable to directly distribute Shuanghui's split carcasses. Many such former slaughterhouse customers, with daily volumes of 30-50 hogs, have abandoned their old business model to become Shuanghui agents in many counties amid this year's harsh market.

In mature northern markets, Shuanghui's cold fresh meat growth is even more pronounced. The source said some cities saw growth exceeding 150%. Besides existing customers increasing sales due to stable supply, the growth mainly comes from new customer development.

Feng Yonghui explained that Shuanghui's acquisition of Smithfield gives it a significant advantage in imported pork. Imported pork prices are now less than half of domestic prices, and cheaper imported pork replaces high-priced domestic meat, mainly for processed products. Shuanghui has sufficient meat supply for fresh channels, ensuring supply and offering more cost flexibility than other companies.

A Shuanghui partner believes the increase in Shuanghui's cold fresh meat market share is not due to price.

The source said Shuanghui's market price has always been its weakness, being high among cold fresh meat brands, deterring many operators who recognize its quality. Additionally, Shuanghui's overly strict and inflexible price management has been criticized by partners, jokingly called "leading in price increases and lagging in decreases." Even during the aggressive market expansion in the first half of the year, its prices were only slightly lower than other similar brands, still the highest. Shuanghui, which has always insisted on "cash before delivery" for decades, would never engage in loss-making transactions or use low prices to dump products and grab market share like other FMCG industries.

The source said that at a time when hog prices remain high and pork consumption is weak, Shuanghui's comprehensive advantages as the largest slaughter enterprise are particularly evident. Its 20 large factories nationwide form a complementary network, effectively offsetting regional hog price and supply anomalies. At a time when many slaughter enterprises are unstable due to operational difficulties, Shuanghui's sufficient supply and stable quality attract customers who previously relied on local hog sources. More importantly, Shuanghui formulated the correct market strategy at the beginning of this year. From January to May, distributors who attended the annual meeting saw Shuanghui's determination and strength in supporting market expansion. Down-to-earth price adjustments alleviated Shuanghui's high-price weakness, and the market share of slaughter enterprises that reduced production or closed due to operational pressure was rapidly eroded by Shuanghui's frontline sales efforts.

All dangers contain opportunities, the source said. Taking advantage of the high hog price crisis, during the most difficult period of industry decline, Shuanghui completed a beautiful reshuffle.

There is no end in sight for high hog prices. Feng Yonghui predicts that domestic hog prices will remain around 20 yuan per kilogram for some time. Many small-scale butchers in the market are flexible and can temporarily close when hog prices are high. Listed companies like Shuanghui have strong financial resources and can expand against the trend. The hardest hit are some large and medium-sized slaughter enterprises, which can only endure the hardship.

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