Will pork stocks bring surprises amid supply-side policy regulation?Understand the pig cycle and the ups and downs of the pig market in one article
Financial Associated Press, September 25 (Editor Liu Yue) Since the beginning of this year, domestic live pig prices have experienced a process of first falling and then rising. The price of live pigs dropped all the way at the beginning of the year, reaching the lowest point of 12.12 yuan/kg in the 11th week. In the second quarter, the price of pigs bottomed out and rebounded, especially since July, the price of pigs has suddenly risen sharply. At the end of August, the price of pigs ushered in a wave of continuous rises after a slight shock. In September, the price of pigs remained above 23 yuan/kg.
Pig farmers who have experienced the “darkest hour” have begun to welcome the “dawn”. As of September 23, according to Yongyi Consulting, the average domestic slaughter price of live pigs was 24.35 yuan/kg, up 106.42% from 11.69 yuan/kg in the same period in 2021. Affected by the continuous fluctuation of live pig prices, the profit of live pig breeding has reached the highest level in the year. Mysteel agricultural product statistics show that as of September 15, the average weekly profit of self-breeding and self-raising was 858.29 yuan per head; before 5.5 months, the purchased piglets made a profit of 947.81 yuan per head at the current pig price, and the profit level reached the average level in 2021.
In the context of ensuring supply and stable prices, pig prices may be “extinguished” in the short term. Analysts believe that the upward trend of pig prices will remain unchanged before the Spring Festival, but the high point in the fourth quarter may be lower than expected. The most optimistic people predict that the price of pigs will return to a historical high of 40 yuan.
The process of rising and falling pork prices is called the pig cycle. Pig prices complete a round of ups and downs every 3-4 years, which is essentially a mismatch between supply and demand, which ultimately affects price fluctuations. Each round of the pig cycle bottoms out, usually accompanied by the bankruptcy of large-scale pig farming enterprises.
A research report released by Guosheng Securities analyst Meng Xin on May 17 pointed out that my country has experienced four rounds of pig cycles since 2006. The large cycle includes small cycles caused by seasonal demand changes. The specific performance is that Q3 and Q4 include important holidays with intensive consumption, and the increase in demand leads to a seasonal increase in the price of live pigs. The most recent pig cycle was from May 2018 to March 2022. In May 2018, African swine fever caused a sharp reduction in the industry’s production capacity, and the price of live pigs soared to 40.98 yuan/kg in November 2019. The high profit of raising pigs prompted farmers and breeding enterprises to actively replenish the stalls. With the recovery of the slaughter volume of live pigs, the price of pigs began to decline in a trend in February 2021, and fell to 12.12 yuan/kg in March 2022.
The pig cycle is closely related to the production capacity of live pigs, and the number of breeding sows represents the production capacity of live pigs. According to data from the Ministry of Agriculture and Rural Affairs, from the second quarter of 2021, the number of fertile sows began to decline, and it did not rise until the second quarter of 2022. The decline in the slaughter rate of pork in the earlier period led to changes in current supply and demand. The Ministry of Agriculture and Rural Affairs said that at present, the production capacity of live pigs is at a normal and reasonable level.
A research report released by Sinolink Securities analyst Liu Chenqian on September 18 pointed out that the current market is generally more motivated to fill up the stalls. . In the context of the historically high profitability of the breeding end, the replenishment of breeding sows is relatively slow, indicating that the market is in a relatively rational state, and the breeding profits for the whole year next year may be better than expected.
It is worth mentioning that the price of pigs that has just broken through the “24 yuan/kg mark” may face “flame out” in the short term. Regarding the supply, demand and price situation of the pig market in the later stage, the Price Department of the National Development and Reform Commission has organized several analyses and judgments recently. In order to effectively ensure the stable supply and price of the pig market, the state will release the third batch of central pork reserves this year this week. According to the quantity already put in and the plan for the later stage, it is estimated that the country and all regions will put a total of about 200,000 tons of pork reserves in September.
Liu Chenqian pointed out that the release of reserve meat has a certain impact on the short-term performance of live pig prices. Policy regulation is conducive to the healthy and orderly development of the live pig industry and prevents the price of live pigs from rising rapidly. Industry insiders pointed out that although 200,000 tons of reserves are put into storage, compared with the monthly average pork consumption of over 4 million tons, it is difficult to reverse the short-term supply and demand pattern. But for the impact of market sentiment, both farmers and slaughtering companies play a certain guiding role. However, at present, the fertilizer price difference of many landmarks is upside down. As the weather continues to turn cold, farmers are still in the mood to increase their weight. It is expected that the overall downward adjustment space may be relatively limited.
In addition, yesterday, Muyuan Co., Ltd. and Wen’s Co., Ltd. issued notices on their related public accounts respectively, and will increase the supply of live pigs around the National Day. Industry insiders told the Financial Associated Press that the group’s slaughter volume in September is currently normal, and the volume may increase slightly in the future, and the price of pigs may temporarily stop rising.
Judging from the trend of pig prices in the second half of this year, China Galaxy Securities stated on September 15 that there is no possibility of a sharp drop in the price of live pigs in the rest of this year, and it is optimistic about the upward trend of pig prices in the fourth quarter. The research report of Founder Securities on August 15 predicted that the overall price of pigs would fluctuate and rise in the second half of the year, and the results of the previous production capacity reduction had initially appeared. A reporter from the Financial Associated Press learned that in the second half of the year, the price of pigs is expected to increase further. Although there is pressure to increase the price of feed at the cost side, the impact is expected to be limited, and the profit of pig farming in the fourth quarter will remain at a high level.
Liu Chenqian pointed out that the long-term trend of live pig prices still depends on the relationship between supply and demand. It is expected that the marginal reduction of the supply side and the continuous repair of the consumer side in the second half of the year will help the pig price maintain the upward trend. He is optimistic that the upward trend of live pig prices will remain unchanged before the Spring Festival, but we must be vigilant about policies The regulation led to a lower-than-expected hog price in the fourth quarter.
In the medium and long term, according to a research report released by Zheshang Securities analyst Meng Weixiao on February 5, in 2023, with the continuous reduction of domestic production capacity from 2021 to 2022, the supply of live pigs will tighten, and pig prices may usher in an upward cycle. A farmer in Henan told a reporter from the Financial Associated Press: “The pigs must be harvested as soon as they are good. The current supply state is the best. This year is not crazy, and there will be good prices next year.” In addition, some analysts are optimistic that once the pigs There is an inflection point in the cycle, and the duration of the upward pig price in the future may be much longer than the previous pig cycle. Pig prices are also likely to return to an absolute high above 40 yuan again.
The stock price is at least 3 quarters ahead of the inflection point of the pig price. The sales volume and price of the listed pig companies in August rose.
A research report released by Dongguan Securities analyst Wei Hongmei on June 22 pointed out that my country’s pig breeding industry presents the characteristics of “small enterprises and large markets”. At present, the market size of the industry exceeds one trillion yuan, but the concentration is low. Taking the number of live pigs as a measure of industry concentration, the CR5 of my country’s pig breeding industry in 2021 will be 12.34%. Among them, the number of live pigs sold by Muyuan Co., Ltd. ranks first in the country, with 40.26 million heads and a market share of 6.01%. The market shares of Wen’s and Zhengbang Technology are 1.97% and 2.23% respectively, and New Hope is around 1.49%. Meng Weixiao pointed out that under the strong epidemic prevention requirements of African swine fever, the industry market share will accelerate to the leading enterprises.
In 2021, the competition landscape of my country’s pig breeding industry Meng Weixiao pointed out in a research report released on September 17 that the total number of slaughtered by major listed companies in the first half of the year was 55.28 million, a year-on-year increase of 49.5%. Among them, Muyuan Co., Ltd., Wen’s Co., Ltd., Aonong Biotechnology, Superstar Agriculture and Animal Husbandry, Huatong Co., Ltd. and New Ng Fung’s slaughter volume increased rapidly year-on-year, but Zhengbang Technology and Tangrenshen’s pig slaughter volume decreased by 30.8% and 0.8% year-on-year respectively. .
From the perspective of the inventory, as of the second quarter, the inventory of Muyuan, Wen’s and Zhengbang Technology was 2.473 million, 1.2 million and 400,000 respectively, ranking the top three.
Meng Xin’s research report released on May 4 pointed out that the breeding models of listed pig companies mainly include self-propagation and self-raising and the “company + farmer” model. Self-propagation and self-support are represented by Muyuan shares. This model adopts heavy asset expansion. The company has stronger control over the fattening process and has a stronger ability to resist risks. The “company + farmer” model is represented by Wen’s Co., Ltd. The company provides seeds, materials and medicines in a unified manner, and provides breeding training to cooperative farmers, while farmers are only responsible for fattening. This model is relatively light in assets. However, there are certain relative disadvantages during the ASF epidemic. Listed companies mainly replaced high-efficiency sows last year, and it is expected that the production capacity reduction in the industry will be mainly contributed by small and medium-sized retail investors.
In terms of cost, the average operating cost of the pig breeding business of most companies will increase in 2021. Among them, the cost advantage of Muyuan Co., Ltd. is still relatively prominent, and the average cost per head is about 1,539 yuan per head. Bio, Dawnrays, etc. are also controlled below 1,600 yuan. Meng Weixiao pointed out that since the price of pigs started to rise in April, the major listed companies’ fattening pig heads have achieved a relatively obvious month-on-month profit reduction. It is expected that in the second quarter, Muyuan shares, Wen’s shares, Tangrenshen, superstar farming and animal husbandry fattening pig heads are all profitable month-on-month. The loss reduction rate exceeded 60%.
The overall industry has experienced an improvement in supply and demand after reducing production capacity for nearly a year. Many listed pig companies have disclosed their August sales briefings. Compared with the same period last year, listed pig companies have shown a trend of increasing both volume and price. Among them, Muyuan shares are expected to make profits in August. Over 3 billion yuan, which can be described as “100 million yuan a day”. The company’s performance in the third and fourth quarters is expected to achieve a substantial improvement year-on-year. According to a reporter from the Financial Associated Press, as of the end of August, the progress of the top pig companies in slaughtering this year has basically exceeded half. Among them, Muyuan Co., Ltd. has launched 40.76 million pigs, with a completion rate of 73%, and Wen’s Co., Ltd. has launched 10.8343 million pigs, with a completion rate of 60%. Hope to slaughter 8.7333 million heads, with a completion rate of 62%.
Liu Chenqian pointed out that from the perspective of the enterprise’s operational risk, elasticity of growth in slaughter volume, fulfillment of slaughter volume, operation and management level, valuation, and cost control ability, Muyuan has a leading cost and strong growth certainty; The company has sufficient capital reserves, and the cost has been effectively controlled in the near future.
Meng Weixiao believes that the current pig industry is still in the upward stage of the pig cycle, and listed companies will usher in a longer profit window. After the correction of the sector, the market value of the top average returned to the underestimated range again. According to the cost advantage, the slaughter can be realized, and the low valuation, etc., we recommend Muyuan, Wen’s, Tiankang Biology, and New Ngfeng, and pay attention to the superstars Nongmu, Tangrenshen and Ao Changes in the breeding costs of agricultural and biological enterprises and the stock of reproductive sows.
It is worth noting that analysts believe that the top pig companies such as Zhengbang, Muyuan, and Jinxinnong have all handed over transcripts of losses or declining profits, but their stock prices are rising inexplicably, which means that the capital market is making a “big gamble”. , the bargaining chip is that the top pig companies can enjoy the dividends brought by the clearing of excess capacity. Every time the market bottoms out, there are institutions that give judgments about the inflection point.
Analysts pointed out that the pork market actually started in early September last year. From September 1, 2021 to late January 2022, the breeding ETF rose by 23%, New Hope and Wen’s rose by nearly 50%, and Muyuan rose by 30%. The stock price is at least 3 quarters ahead of the inflection point of the pig price, the pig price has not moved, and the sail has set sail.
In addition, what cannot be ignored is that, as of the end of June 2022, the average asset-liability ratio of major listed companies was 62.70%, up 12.22 percentage points from the same period last year. Under the pressure of expansion and capital, companies refinanced through the issuance of convertible bonds and fixed increase, but the cash flow was still tight.