This week's industry opinion on pig breeding: demand has declined after a year, and pig prices have recently been under pressure. The average price of lean pork pigs in the country this week was 11.49 yuan/kg, down 2.49% from the previous month. This week, the price of pork food was 5.86, down 0.24 from the previous month. There are two types of investment logic in the pig breeding sector. One is the overall opportunity for a cyclical industry, mainly based on fluctuations in the pig price cycle. The decline in pig prices inhibits stock price performance, and conversely catalyzes the market; the second is the opportunity for leading value revaluation brought about by the accelerated transformation of the industry. Under the pressure of environmental protection policies, the degree of scale in the pig farming industry has increased rapidly, the bottom of the industry has expanded, the price is compensated by volume, and market share is accelerated. It can achieve high performance elasticity during the industry's upward period. It is possible to achieve high performance elasticity during the industry's upward period. In the current downward cycle, pigs are misunderstood and underestimated by industry logic, and there is limited room to judge pigs in our downward cycle. Under the premise, we think This stage is a good time for the deployment of leading pig breeding, and there is plenty of room for improvement in valuation. The main analysis of the industry cycle is currently being carried out. Looking at the short term, after the year, demand will be weak, pig supply will be sufficient, pig supply and demand will ease, and pig prices will face downward pressure in the short term. Recently, however, there has been a narrowing trend in the decline in pig prices. There are few cows and pigs left in the market. The efficiency of pig breeding is already below the cost line, the difficulty of slaughtering enterprises to collect pigs has increased, and at this stage, pig prices are seasonal correction, so there is limited room for pig prices to decline, and even a short-term rebound is expected. Looking at the big cycle, effective supply continues to recover, and the cycle is slowly declining. Due to the impact of the increase in sow production efficiency and weight of released pigs brought about by large-scale breeding, effective supply is gradually picking up. Currently, the pig cycle is still declining. However, supply recovery was slow due to environmental policies and the slowdown in pork imports. According to pig storage data from 400 counties monitored by the Ministry of Agriculture, pig storage in January 2018 fell 1.2% month-on-month, down 3.2% year on year, and breeding sows fell 0.3% month-on-month, down 4.9% year on year; according to data from the Ministry of Agriculture, pork imports in the first half of 2017 were 662,000 tons, down 13.1% from the same period last year. It is worth noting that although the volume of imported pork decreased year on year, domestic and foreign pork price differences still exist, and pork imports will continue to remain high. Overall, there is no basis for a sharp decline in pig prices in this round of the pig cycle. There is no basis for a sharp decline in pig prices. The second type of investment logic applies at this stage. It is recommended to focus on leading enterprises in the industry that have relatively low valuations and have maintained progress in expanding production capacity. Poultry farming: Poultry chain prices continue to pull back. This week, the purchase price of chicken in Yantai, Shandong was 3.23 yuan/kg, down 3.00% from the previous month, and the ex-factory price of chicken seedlings was 3.00 yuan/feather, down 13.04% from the previous month. Looking at the medium to long term, the logic of introducing discontinued poultry chains has not changed. The white-winged broiler boom will gradually materialize later, and the chicken price boom will rise or stay there for a long time. In terms of the introduction and storage of ancestral chickens, in 2015, due to customs clearance incidents caused by foreign diseases, only about 630,000 sets of ancestral breeders were introduced throughout 2016. In 2017, the H5 subtype disease ravaged the world. In January-January 2017, China introduced a total of about 128,000 sets from Spain and Poland. Currently, Poland has been closed due to a recurrent disease, and New Zealand is still under technical customs closure (involving amendments to inspection and quarantine regulations). According to statistics from the China White Feather Broiler Alliance, as of the first half of 2017, only about 200,000 sets were introduced. The population of ancestral chickens affected by forced feather changes was slightly higher than the number introduced, but it had little effect on the amount of eggs produced by ancestral chickens. In terms of parent-surrogate chicken storage, according to data from the China Animal Husbandry Association, as of the beginning of October 2017, some enterprises across the country were keeping about 14.3 million sets on behalf of parents, down 4.7% from the beginning of September. We expect that there will be a substantial shortage of broilers on the supply side, the cycle span of the poultry chain will increase, and the inflection point of the economy has reached. Feed: Affected by large-scale farming, industry integration has accelerated, and leaders in integrated aquaculture layout have benefited. On the one hand, as production capacity in the pig breeding industry continues to recover and the large-scale process is further accelerated, the demand for feed in the breeding industry tends to be service-dependent and high-end, forcing the integration of the feed industry to accelerate. Low-end production capacity is gradually being eliminated. Industry leaders rely on advantages such as products and services to gain more share, and performance elasticity is greater as breeding stocks recover. However, it is important to note that large-scale farmers are also gradually equipped with feed equipment, and the threshold for the feed industry is still low. In the long run, the profitability of enterprises extending the industrial chain to the downstream aquaculture industry will steadily increase, their ability to withstand risks will be strengthened, and competitive advantages will gradually become apparent. Therefore, we believe that the feed industry will show a trend of integrated breeding. On the other hand, raw material costs are still facing downward pressure to increase profit margins. This week, the spot price of soybeans was 3472.11 yuan/ton, the same month on month. The spot price of soybean meal was 3257.88 yuan/ton, an increase of 4.97% over the previous month, and the average spot price of corn was 1966.25 yuan/ton, up 4.14% from the previous month. In terms of corn, although the gap between supply and demand is gradually widening due to a reduction in cultivation area and an increase in downstream processing demand, China's corn stocks are still high, and the process of removing stocks will take some time. It is expected that domestic corn prices will still face downward pressure in the short to medium term. In terms of soybeans, the USDA's January soybean supply and demand report predicts that the US soybean yield for 2017/18 will be 49.1 bushels per acre, a slight decrease compared to last month's forecast. Currently, the critical growth period for soybeans has passed, and abundant production can be determined basically. According to customs statistics, China imported 5.424 million tons of soybeans in February 2018, down 2.09% from the same period last year. Soybean prices will still face downward pressure in the next year due to abundant global soybean production in 2018 and supply and demand remaining relaxed. The feed industry will benefit from the continued decline in raw material costs, and profitability is expected to continue to rise. It is recommended to focus on leading feed companies, such as Jin Xinnong and Haida Group, which have reduced the risk of performance fluctuations and increased profitability due to accelerated aquaculture integration processes. Sugar industry: Sugar prices pulled back month-on-month. This week, the spot price of white sugar in Liuzhou was 5,890 yuan/ton, down 1.42% from the previous month. Judging the trend of sugar prices at home and abroad, we focus on two indicators: the gap between supply and demand and the ratio of stocks to sales. In terms of international raw sugar, we are currently in the inventory removal cycle. Despite the USDA's expectations of an oversupply in the 17/18 season, sugar stocks continue to decline. It is estimated that the stock sales ratio of sugar in the 17/18 season will drop to 22.74%. We judge that the stock sales ratio that has been declining year after year will strongly support international raw sugar prices. In terms of domestic sugar prices, the USDA expects China's sugar gap to reach about 3.3 million tons in 2018, and the stock sales ratio will drop to 47.25% from 60.7% in 2016. Considering, on the one hand, that sugar cane cultivation area is basically stable in the future, yield and sugar yield will increase, sugar production will grow steadily, and at the same time, raw sugar imports will be drastically reduced under the premise of tariff policy protection. On the other hand, sugar consumption is expected to continue to grow steadily when the use of starch sugar substitutes becomes more saturated. Combined with the bottom support in domestic sugar prices above, it is expected that there will be a steady recovery in the medium to long term. Fishery: Participation prices maintain price levels, and the seafood industry remains prosperous. The bulk price of sea cucumber this week was 116 yuan/kg, the same month on month. The current unit prices for abalone, scallops, and prawn were 160 yuan, 8 yuan, and 180 yuan per kilogram, respectively. Despite a recent correction in participation prices, the seafood industry as a whole is still in an upward phase of prosperity due to continued demand recovery and supply side contraction due to capacity restructuring. Before 2011, sea cucumber products focused on the concept of “luxury food” and set off a boom in the high-end consumer market. The gross profit and growth rates of major sea cucumber farming and processing enterprises reached 66% and 64% respectively. As manufacturers continued to join, leading to overcapacity in the industry and the introduction of consumption restriction policies, sea cucumber prices began to decline sharply, falling rapidly from a high level of more than 200 yuan/kg in 2011 to 80 yuan/kg in the first half of 2016. Prices have dropped by more than 50% within 5 years. Since then, the process of removing production capacity in the sea cucumber market has continued, and the industry has begun to pick up. Boom Upward period. We expect the industry to continue to improve, so we recommend paying attention to Haodangjia and Oriental Ocean. This issue of “Excellent Promotion” portfolio: Haodanjia (600467), Yasheng Group (600108).