This week's industry opinion on pig breeding: demand will weaken after a year, and pig prices have recently come under pressure. The average price of lean pork in the country this week was 13.43 yuan/kg, the same as the month-on-month ratio. This week's pork food ratio was 7.03, the same as the month-on-month. In the short term, demand is weak after the year, the pig supply is sufficient, pig supply and demand are relaxed, and pig prices are facing downward pressure in the short term. Recently, however, the decline in pig prices has narrowed. The number of cows and pigs kept in the market is relatively small, the benefits of pig breeding are close to the cost line, the difficulty for slaughter companies to collect pigs has increased, and at this stage, pig prices are seasonal correction, so there is limited room for pig prices to fall, and they are expected to rebound in the short term. It should be pointed out that in addition to pig prices, the key factors affecting the farming efficiency of enterprises include food prices. The current pig price is comparable to the bottom level of the previous cycle in 2013. The pig food ratio is below 7, and the current pig food ratio is above 7. This is mainly due to agricultural supply-side structural reforms leading to a drop in corn prices. Although profit margin is consistent with the pig price cycle, it is also highly compatible with the pig stock price index. However, the absolute level of breeding profit determines the company's valuation level. The market's excessive dependence on pig prices and relative neglect of the cost end of the company causes the company to be relatively ignored by the market Value is relatively undervalued and relatively overestimated. We believe that there is room for upward correction in current sector valuations. Looking at the larger cycle, effective supply continues to recover, and the cycle is slowly declining. Effective supply is gradually picking up due to the impact of large-scale farming on sows and the increase in the weight of released pigs. Currently, the pig cycle is still declining. However, due to environmental policies and the slowdown in pork imports, supply recovery has been slow. According to pig storage data from 400 monitoring counties of the Ministry of Agriculture, pig storage in January 2018 fell 1.2% month-on-month, 3.2% year-on-year, and sow breeding fell 0.3% month-on-month, down 4.9% year-on-year; according to Ministry of Agriculture data, 662,000 tons of pork were imported in the first half of 2017, a decrease of 13.1% compared to the same period last year. It is worth noting that despite the year-on-year decrease in imported pork prices, domestic and foreign pork price differences still exist, and pork imports will continue to remain high. Overall, the current pig cycle trend is flat and has a large span. There is no basis for a sharp drop in pig prices. It is recommended to focus on leading companies in the industry that have relatively low valuations and are maintaining the progress of production capacity expansion. Poultry farming: There has been a correction in the price of chicken seedlings. This week, the purchase price of chicken in Yantai, Shandong was 3.55 yuan/kg, down 2.74% from the previous month, and the factory price of chicken seedlings was 3.45 yuan/feather, down 6.76% from the previous month. In a situation where pig prices are weakening in stages, the price of alternative poultry meat does not fall, but instead increases, it sends an upward signal for the cycle. Looking at the medium to long term, the logic of introducing an increase in the off-season poultry chain has not changed. The white feather broiler boom will gradually pay off in the later stages, and the chicken price boom will rise or remain for a long time. In terms of the introduction and storage of ancestral chickens, in 2015, only about 630,000 sets of ancestral chickens were introduced in 2016 due to customs clearance events caused by foreign diseases. In 2017, H5 subtype diseases ravaged the world. From January to January 2017, China introduced a total of about 128,000 sets from Spain and Poland. Currently, Poland has been closed due to recurrent diseases, and New Zealand is still undergoing technical customs clearance (involving amendments to inspection and quarantine regulations). According to statistics from the China White Feather Broiler Federation, as of the first half of 2017, only about 200,000 sets were introduced. Affected by forced feather exchange, ancestral chicken stocks were slightly higher than the number introduced, but it had little effect on the egg production of ancestral chickens. In terms of storing chicken on behalf of parents, according to data from the China Animal Husbandry Association, as of the beginning of October 2017, some enterprises across the country kept about 14.3 million units as surrogate parents, down 4.7% from the beginning of September. We expect there will be a substantial shortage on the broiler supply side, compounded by a recovery in seasonal chicken consumption. We believe that the cycle span of the poultry chain has increased and the economy has reached an inflection point. Feed: Affected by large-scale farming, industry integration has accelerated, and leaders in integrated farming have benefited. On the one hand, with the continuous recovery of production capacity in the pig breeding industry and the further acceleration of the large-scale process, 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 and low-end production capacity is gradually being eliminated. Industry leaders rely on advantages such as products and services to occupy more share, and performance is more flexible as breeding stocks recover. However, it should be noted that large-scale farmers are also gradually becoming capable of supplying feed, and the threshold for the feed industry is still low. In the long run, the profitability of enterprises extending the industrial chain layout in the downstream aquaculture industry will steadily increase, their resilience to risk will be strengthened, and competitive advantages will gradually become apparent. Therefore, we believe that the feed industry will show a trend of integrated farming. 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, down 1.49% from the previous month; the spot price of soybean meal was 3251.72 yuan/ton, up 6.55% from the previous month. The average spot price of corn was 1909.25 yuan/ton, up 1.94% from the previous month. In terms of corn, although the gap between supply and demand is gradually widening due to the reduction in planting area and the increase in demand for downstream processing, stocks of corn in China 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 USDA1 monthly soybean supply and demand report predicts that the 2017/18 soybean yield in the US will be 49.1 bushels per acre, a slight decrease compared with the previous month's forecast. Currently, the key growth period for soybeans has passed, and abundant production can be basically determined. According to customs statistics, in January 2018, China imported 8.48 million tons of soybeans, an increase of 10.71% over the same period last year. Due to abundant global soybean production in 2018, supply and demand remain relaxed, and soybean prices will still face downward pressure in the next year. 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 reduce the risk of performance fluctuations and increase profitability due to the acceleration of the integrated farming process. Sugar industry: Sugar prices have rebounded. The spot price of sugar in Liuzhou this week was 5,975 yuan/ton, up 0.42% 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 inventory to sales. In terms of international raw sugar, we are currently in the inventory removal cycle. Although the USDA estimates that there will be oversupply during the 17/18 season, sugar stocks will continue to decline. It is expected that the sales ratio of sugar depots will drop to 22.74% during the 17/18 pressing season. We judge that the declining stock sales ratio over the years will provide strong support for 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 inventory sales ratio will drop to 47.25% from 60.7% in 2016. Considering, on the one hand, that the area under sugar cane cultivation is basically stable in the future, the yield and sugar production rate will increase steadily, and 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 as the use of alternative starch sugar becomes increasingly saturated. Combined with the bottom support of domestic sugar prices above, it is expected to rise steadily in the medium to long term. Fishery industry: Participation maintains prices, and the seafood industry maintains prosperity. The bulk price of sea cucumbers this week was 116 yuan/kg, which is the same as the previous month. The current unit prices for abalone, scallops, and prawns are 160 yuan, 8 yuan, and 180 yuan per kilogram, respectively. Despite a recent correction in participation prices, the entire seafood industry is still booming due to the continued recovery in demand and the supply side continues to shrink due to capacity restructuring. Before 2011, sea cucumber products focused on the concept of “luxury food”, which set off a boom in the high-end consumer market. The gross profit and growth rate of major sea cucumber farming and processing companies 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 rapidly, falling rapidly from a high of 200 yuan/kg in 2011 to 80 yuan/kg in the first half of 2016. The price drop in the sea cucumber market continued, and the industry began to pick up high. The boom. We judge that the sea cucumber market is still in a period of capacity adjustment. It is expected that the industry will continue to improve. We recommend focusing on Haodang and Oriental Ocean. This issue's “Excellent Promotion” portfolio: Haodang (600467) and Yasheng Group (600108).