Farmers have stepped up production of poultry and eggs in China. Photo: china stringer network/Reuters

New cracks have appeared in China’s egg market, the result of an uptick in production and a drop in meat prices at the end of 2019.

Since November, prices of one-month egg futures on the Dalian Commodity Exchange have fallen 45% to about 2983 yuan ($433.73) a metric ton. That means they have largely erased an 81% gain last year that followed increases in pork and other meat prices in China.

China has futures markets for commodities from soybean meal to apples to polypropylene. It doesn’t, however, have meat futures. As a result, egg futures have become somewhat of a proxy for traders and speculators looking to take positions on Chinese meat prices in coming months.

Pork prices in China surged last year, driven by tightening supplies of meat due to a large outbreak of African swine fever, a deadly and highly contagious hog disease. The disease’s spread has led many Chinese farmers to cull pigs, speed up slaughters of hogs, and, in some cases, stop replenishing their herds. China’s pig population, once the world’s largest, has shrunk by nearly a half as a result.

Following a 154% surge during 2019 to November, however, pork prices fell 8% in December. Supplies increased in December as the number of pigs slaughtered for meat jumped 14% that month and the Chinese government released more pork from the country’s reserves ahead of the weeklong Lunar New Year holiday that commences in late January 2020. That is a period when domestic consumption of pork usually increases. China has also stepped up imports of pork and other meats, and plans to increase its purchases of U.S. agriculture products under the recent trade deal that Beijing and Washington struck.

Egg futures correspondingly dipped. The price of fresh eggs often falls in the run-up to Lunar New Year, in part because commercial food manufacturers that use large amounts of eggs tend to halt production so their workers can return to their villages to celebrate the holiday with their families.

This year’s drop, however, is larger than it has been historically because of how much meat and egg prices ran up last year, and because farmers have stepped up poultry and egg production.

It was relatively easy for Chinese hog farmers to switch from raising pigs to farming poultry, said Darin Friedrichs, Asia senior agricultural analyst at financial-services company INTL FCStone. He added that “many people took that choice” because of the African swine fever outbreak.

So far in 2020, pork prices in China have been edging up again, so egg prices could increase too. Some market participants are forecasting that pork supplies will tighten following the Lunar New Year holiday. Rabobank is forecasting pig-slaughter levels will fall a further 10% on levels seen in 2019, which were already down about 25% on year.

China produced 33.1 million metric tons of eggs in 2019. In that year, egg futures worth 1,567 billion yuan ($228 billion) changed hands on the Dalian Commodity Exchange. Unlike large overseas commodity exchanges, the Chinese bourses counted both buy and sell as separate contributors to trade volumes.

Write to Lucy Craymer at Lucy.Craymer@wsj.com

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