PORK prices in China are likely to stay low for longer, extending a run of miserable profits for pig farmers and complicating efforts to stave off deflationary pressures in the economy.

An ample supply of hogs and sluggish consumption look set to keep the market under pressure, despite the advent of peak demand season over winter. Prices may not recover until the second half of next year.

That’s bad news for agricultural markets, particularly for the meat exporters around the world that supplement Chinese output, and the farmers in the Americas that grow the soybeans and corn to feed China’s vast pig herd.

It’s also a worry for wider financial markets given pork’s weighting in the basket of goods that measures inflation in Asia’s largest economy.

Consumer prices fell last month for the second time this year and weak pork prices took much of the blame. An extended slump would only pile on the deflationary risks in the world’s second-largest economy.

“We estimate it has a 2.3% weighting in the basket, but the impact is larger considering falls in the prices of other meats, which are substitutes for pork,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd.

Prices have languished this year because they’re at the tail end of one of the boom-and-bust periods that characterize China’s market.

The so-called pork cycle usually lasts three or four years as farmers expand their herds to capture higher prices, only for the market to then sink as the additional supply overwhelms demand.

But the cycle has been thrown off somewhat by African swine fever, first detected in the country in 2018, said Zhu Di, an analyst with GF Futures Co., leading to greater than usual price volatility.

The impact of the pandemic and industry consolidation has also made it more difficult to judge the ebbs and flows of the pork market.

The current cycle started in early 2021, when prices dropped steeply, so a new one should be coming soon, said Xing Zhao- peng, senior China strategist at ANZ Group Holdings Ltd.

Demand usually picks up in any case ahead of the Lunar New Year, which will fall in the middle of February. But there’s every chance that consumption won’t meet expectations and that oversupply will persist, which was also the case during the Mid-Autumn Festival in early October.

The holiday season and colder weather usually mean lots of feasting on the nation’s favorite meat. As China’s staple protein, pork is a useful indicator of how demand is holding up in the broader economy.

“The sharp fall in pork prices is indicative of excess supply in the hog market, but more broadly in the economy, resulting from output growing faster than domestic demand,” said Pantheon’s Wrigley.

(SD-Agencies)