China: the pork giant raises 21 million pigs, but also has 12 billion euros in debt
The financial problems in the large Chinese market may not only affect real estate giants, but also spread to other companies that produce consumer goods with fluctuating prices.
Muyuan Foodstuffs, China's largest pork producer, is a company that revels in its ability to raise debt, so much so that it celebrated its ability to raise resources with 30 releases in a single day, as Jemian reports . A little too much not to be noticed.
The growth of this Chinese food giant is, like others, based on debt, a lot of debt, but what is interesting is the fact that this money has also financed some eccentricities
Muyuan said it had obtained more than 100 billion yuan, 12 billion euros, in loans to ensure liquidity. It's a familiar story across industries, where easy debt has driven supply to exceed demand. The current oversupply of pork is the obvious result of over-expansion. Muyuan is not yet a company in serious difficulty, like Evergrande, but the path seems to be the same.
An energetic, but also eccentric entrepreneur
China's pork industry, with its constant ups and downs, is not for the faint-minded and Muyuan founder QIN Yinglin, 57, is known to be a risk taker. In the early 1990s he left his stable job to start a pig farm with his wife, weathered one crisis after another and built an empire that went public in Shenzhen in 2014. In the neighborhood Muyuan's general, Qin placed a giant pig statue right next to a bizarre and inexplicable replica of the Louvre Pyramid. Qin regularly leads employees to pay homage to the pig farm deities.
The Louvre Pyramid in China, at the Muyuan entrance
Despite the somewhat compelling story, Muyuan was an ordinary pig farmer until swine flu killed nearly half of China's livestock population. Muyuan has avoided major outbreaks in its facilities and made huge profits, being the only one able to offer adequate quantities of pork. Two years ago, it managed to open a 5 billion yuan state-of-the-art pig farm. Muyuan raises 60 million pigs a year, about 10% of China's total and more than its four closest competitors combined.
With an estimated personal wealth of 185 billion yuan ($25.9 billion), higher than that of Alibaba founder Jack Ma, Qin is the eighth richest person in China.
Pork, an unstable sector
China's hog industry is perpetually plagued by cycles of shortages and overproduction. If small farms, which make up the majority of producers, are the main victims, large companies are not immune. The years immediately following the swine flu saw a wave of new entries, consolidations, and expansions, fueled by large subsidies to replenish hog supplies and prevent another shortage that would cause inflation. Even the energy giant PetroChina and the real estate developer Wanda have toyed with the idea of raising pigs.
Muyuan therefore decided to grow to a level that was no longer competitively comparable, also investing heavily in automation. From 2018 to 2021, Muyuan's fixed assets increased from 13 billion yuan to 99 billion. Now its largest farm is capable of housing 21 million pigs per year. There is so much feed that it is managed through pipes, to prevent truck traffic, 100 a day, from blocking the nearby highway.
A cycle of Boom and Crash
However, this situation of high pork prices could not last long. The country very quickly returned to pre-swine flu levels and prices have fallen below cost, about a third of their 2019 peak.
Between 2018 and 2021, Muyuan made 41 billion yuan in profits. But in the same period, debt grew to more than 1 trillion yuan, about 61% of total assets. In 2021, profits fell 75%. By November 2021, more than 17 million yuan of invoices were overdue, and finances deteriorated further over the next two years.
Muyuan's debt-to-asset ratio of 60% is lower than the industry average, but about 80% is due this year. Short-term loans doubled in the first three quarters of 2023.
An entrepreneur who is a little more lucid than real estate developers, but will it be enough?
Typically, companies cut production during periods of surplus, and Qin has done so skillfully. Until recently, most pork producers waited for their competitors to make the first move. Given the increase in debt and decreasing liquidity, Muyuan has revised its production forecasts downwards and reduced investments.
Capital spending is set to fall below 2022 levels. A new headquarters is on hold, but its construction has been halted, and the aggressive executive hiring that characterized the expansion between 2019 and 2020 has practically stopped.
However, Qin deserves credit for insisting on reducing costs through technology. The company's highly automated farms curb the spread of disease and optimize pig growth. The company has also introduced a new diet since the war between Russia and Ukraine sent soybean feed prices soaring.
Muyuan has the lowest costs among all domestic pork producers. In the regime of high concentration and low margins that the pork industry is rapidly entering, this is not a bad position, but if excess production continues and prices continue to fall, then this pork giant will also find itself in difficulty . At that point the outlet would become the international markets and we would also have pig dumping!
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The article China: the pork giant raises 21 million pigs, but also has 12 billion euros in debt comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-il-colosso-del-maiale-alleva-21-milioni-di-suini-ma-ha-anche-12-miliardi-deuro-di-debiti/ on Mon, 04 Mar 2024 08:00:16 +0000.