"Long positions never die, short positions never end" Over 10 billion in funds battle it out in live pig futures

Source: 21st Century Business Herald; Author: Dong Peng

On April 7, during intraday trading, the benchmark live hog futures contract 2605 hit a low of 9,125 yuan/ton, continuing to set new lows since the listing.

As for the live hog spot market and the stock market, they have seen a slowdown in the downtrend since April, for example, the latest domestic live hog price (outer three breeds) is 10.12 yuan per kilogram, unchanged from the spot price at the end of March. Related stocks such as Muyuan Co., Ltd. and Wen’s Co., Ltd. also did not continue to fall; meanwhile, some stocks even recorded a small increase over the same period.

The reason for the major differences in the short-term performance of the futures, spot, and stock markets may be related to the intensification of the tug-of-war between long and short positions in the futures market.

In fact, since mid-March when hog prices began this round of decline, live hog futures have been continuously setting new position-holding records. Total open interest has risen from roughly 350k lots to about 500k lots currently.

According to Wind data, as of the close on April 7, the value of open interest in live hog futures had already reached 83.36 billion yuan, and the amount of funds settled (margin occupied) also reached 13.34 billion yuan.

Although hog prices have already fallen to an absolute low level in nearly two decades, in the futures market, the longs and shorts have not yet decided the outcome. Over the past few trading days, the top 20 futures companies by position-holding rankings have continued to “reinforce” and add more positions.

Amid the ongoing entanglement between long and short funds, the 2605 contract has maintained its downward inertia, continuously hitting new lows.

Hog prices hit new lows; open interest hits new highs

Since April, the decline in live hog spot prices has been smaller than that of live hog futures.

According to China Hog Industry Network data, since April, the lowest domestic live hog price (outer three breeds) has been 10.03 yuan per kilogram, with the low at the end of March at 10.06 yuan per kilogram. Over the same period, the lowest price of live hogs (inner three breeds) was 9.95 yuan per kilogram, compared with the low at the end of March of 10.03 yuan per kilogram.

By contrast, in the futures market not only has the decline been greater, but prices are also lower—especially the 2605 contract, which is the “main battlefield” where both longs and shorts are currently fighting, and also the contract with the highest trading activity.

After this contract broke below 10 yuan per kilogram at the end of March, on the morning of April 7 it fell to around 9.13 yuan per kilogram at its lowest point, setting a historical low for this product since it was listed in 2021.

With hog prices at an absolute low level for nearly two decades, they have also attracted large amounts of capital to rush in to “buy the dip,” driving the open interest scale of live hog futures to continue rising.

According to data from Wind, in early March, total open interest in live hog futures fluctuated around 350k lots. After that, as the main contract successively broke below the integer price levels of 11 yuan per kilogram and then 10 yuan per kilogram, both open interest and the open-interest value gradually increased. By the afternoon of April 7, total open interest in live hog futures had already reached 501k lots, up more than 40% from early March. This record open-interest level corresponds to margins on the scale of more than 350k yuan.

Also, according to Wind statistics, as of the close on April 7, the value of open interest in live hog futures reached 83.36 billion yuan, and the settled funds amounted to 13.34 billion yuan. The margin ratio implied by the data definition was 16%. Among them, the open-interest amount can be estimated using the futures settlement price and the trading unit (16 tons/lot), and the accuracy of the related data is relatively high. The settled funds differ because each futures company applies different margin standards, so the specific figures above can only be used as reference.

However, even using a lower standard—for example, using a 13% margin ratio for live hog futures on April 7 at a leading futures company—the current positions held by both longs and shorts are already “stationed in the billions.”

More importantly, although live hog futures have continued to fall in the short term and the main contract has even dropped to 9.1 yuan per kilogram, long positions have not given up.

For example, looking at the top 20 futures company seats by position-holding ranking, in the past few trading days, the amount of long-position adding has even been greater than that of shorts. For instance, on April 1, among the top 20 futures company seats, longs added 4,734 lots, while shorts added 2,030 lots. Also, on March 2 and March 3 and beyond those seats, the amount added by longs was slightly more than that added by shorts until, only on April 7, the amount added by shorts surpassed that added by longs.

And as the saying goes, “as long as the longs don’t die and the shorts won’t stop,” as long as the long positions have not fully exited after sufficient stop-losses and the open interest has not fallen noticeably, the current trend of live hog futures is also hard to say can be reversed. The changes that can be anticipated are nothing more than the main battlefield where longs and shorts are battling for dominance; next, as the delivery month of the 2605 contract approaches, the focus will gradually shift to the next main contract, 2607.

As of the close on April 7, the latest price of the 2607 live hog futures contract was 10.23 yuan per kilogram, clearly higher than the 9.21 yuan per kilogram price of the 2605 contract. This price gap of as much as 1 yuan per kilogram also provides shorts with more room to deploy their efforts later on.

A dim cycle “ensemble cast”

Live hog breeding enterprises are naturally short-leaning. However, because the absolute price of live hog futures today is so low, selling for hedging also cannot effectively offset losses in their live hog business. For example, the 2611 contract, representing the November hog price expectation this year, had a settlement price on April 7 of only 11.98 yuan per kilogram, which is below the cost lines of most live hog breeding enterprises.

Based on recent earnings call explanations and institutional research, among the leading breeding companies with the greatest cost advantages, Muyuan Co., Ltd. and Wen’s Co., Ltd. have hog costs around 12 yuan per kilogram in January–February this year. For New Hope, the fully loaded cost for fattening hogs in February this year is about 12.3 yuan per kilogram.

Muyuan’s cost target for this year is also no more than 11.5 yuan per kilogram, and in the near to medium term, the possibility of avoiding losses through a large-scale cost reduction is small.

Even if the goal is to reduce losses and choose to sell hedges via far-month contracts, there is still the need to consider that, as non-main contracts, they suffer from insufficient liquidity and a smaller market size.

With futures prices too low and limited room to cut costs on their own, some live hog breeding enterprises have already made a “protracted war” mindset and are seeking to hedge losses from breeding operations through some new methods.

Muyuan’s chosen approach is to expand overseas markets and extend downstream into slaughtering and meat processing within the industry chain. In March 2025, the company previously established an overseas wholly owned subsidiary, Vietnam Muyuan Co., Ltd., through its subsidiary. The main business is to provide technical services for live hog breeding, intelligent breeding equipment, and more.

At a recent annual report exchange meeting, the company’s latest stated wording has been adjusted to: “In 2026, our goal for overseas business development is to establish breeding capacity in Vietnam and open up the technical path for development locally.” At the same time, the company also pointed out that compared with 2025, its capital expenditure plans on the slaughter end have increased; it will step up investment in slaughter and meat business to enhance its in-house slaughter ratio.

Wen’s Co., Ltd., which has some capacity to hedge with poultry business and theoretically faces less operating pressure, has also clearly set “going global” as an important strategic direction. Its initial target is to secure about a 10% share of Vietnam’s broiler chicken market; then, depending on overseas development conditions, it will gradually expand into other businesses such as pig and duck industries.

Historical data shows that in 2025, Wen’s Co., Ltd. sold 40.4769 million hogs, including 5.0302 million piglets, making it the second-largest live hog breeding enterprise in China after Muyuan.

Against the backdrop of pushing live hog industry overcapacity reduction domestically, Wen’s Co., Ltd. has announced to the outside world that it will supply 5 million head of fresh milk-fed pigs and roasted milk-fed pig series products to the market annually, as an important way for the company to sell its piglets. In its view, this move can reduce the weaning-out weight of hogs, avoid weight gain during holding periods, and thereby alleviate the problem of excess capacity.

In the last hog cycle, for Jingji Zhinuo—whose business involves both real estate and breeding—it “hedged” across multiple businesses through external acquisitions. According to a recent announcement, the company plans to obtain control of Jiangsu Huibao Robot Technology Co., Ltd. in total through capital increases and signing acting-in-concert agreements, and bring it into the scope of consolidation. In response, Jingji Zhinuo said, “This helps the company balance the cyclical fluctuations of its main hog breeding business and promotes the company’s expansion-driven growth.”

(Editor: Wen Jing)

Keywords:

                                                            Live hog