HONG KONG: China Yurun Food Group Ltd, a major meat products supplier on the mainland, expects hog prices to rise by 10 percent in the second half of the year and a further 20 percent next year.

"Hog prices should have bottomed out in May or June," chairman Zhu Yicai told reporters after the company's annual general meeting yesterday.

Zhu noted that prices had started to rally in mid-June. "Hog prices could rise 10 percent in the second half compared with the first half," he said. He forecast a further 20 percent increase in hog prices next year.

The chairman downplayed the likely impact of higher hog prices on the company's operations.

The food maker generates 50 percent of revenue from its upstream hog-slaughtering operation and the remaining revenue from its downstream processed-meat products business.

The impact of higher hog prices on the company's downstream business will be limited as it has ample meat inventory, Zhu said.

He did not speculate the likely impact of higher hog prices on the company's upstream operation.

Advantages

Zhu said he was very optimistic about the company's operational performance in the second half, citing stronger economic growth and favorable government regulations.

He noted that the company slaughtered much more hogs in the second quarter compared with the first quarter as a stronger economy helped boost demand for meat products. But he declined to provide any actual figures for the first half.

The country's newly-implemented industry regulations aimed at enhancing hygiene and food safety will also benefit market leaders such as Yurun, Zhu said.

"Stricter industry regulations will accelerate industry consolidation, benefiting industry leaders," he said.

Swine flu

Zhu said the current swine flu epidemic had little impact on Yurun's operations.

"Our upstream business was affected for two or three days only while the downstream operation was affected for two to three weeks," he said.

"However, our operations returned to normal in June."

Zhu said Yurun would continue to expand its production capacity, reiterating a target to raise its annual slaughtering capacity to 30 million heads next year from 18.1 million heads at end-2008 with a capital expenditure of HK$1.5 billion for this year.

He revealed that the company had made several small-scale acquisitions in the first half.

Shares in Yurun fell 0.81 percent to close at HK$12.26 in Hong Kong yesterday.

(HK Edition 06/23/2009 page4)