The Zhitong Finance App learned that Huachuang Securities released a research report saying that the slaughter rate has gradually returned to normal, and the price difference between standard fertilizer has largely supported Eryu's entry into the market, driving price fluctuations to strengthen. Long-term losses may have led to tight cash flow in the industry. Against the backdrop of continued sluggish pig prices, capacity removal is expected to accelerate and be highly sustainable. Currently, the industry's capacity reduction has entered the deep-water zone, and nonlinear capacity reduction may occur. According to the 3% reduction rate in the quarter, the Bureau of Statistics's energy yield will be reduced to less than 39 million heads by the end of the second quarter of '24. The pig sector has already ushered in a key layout window.

The views of Huacheng Securities are as follows:

The Shanghai and Shenzhen 300 Index rose as a whole this week (3.4-3.10), up 0.20% from last week. The Agriculture, Forestry and Animal Husbandry II (Shenwan) Index closed at 2583, down 0.38% from last week. The biggest increase was in the aquaculture sector (+0.89%). Judging from the valuation, PE/PB in the planting industry, aquaculture industry, animal health care, and feed are all below average (1 year), while PE in the fishery industry is above average (1 year), and PB is below average (1 year).

Pigs: Low pig prices are compounded by financial pressure, and industry production capacity may continue to decline.

Third-party agencies released industry energy data for February, including steel coupling -0.28% month-on-month (previous value -0.56%), surging profit +0.28% month-on-month (previous value -0.76%). Affected by the Spring Festival holiday in February, sow culling volume narrowed month-on-month, and pig hunting enthusiasm declined, leading to a narrowing of production capacity reduction.

In terms of market conditions, the slaughter rate gradually returned to normal. The price difference in standard fertilizer supported the entry of secondary education, driving the price shock to strengthen. On March 10, the average price of pigs nationwide was 14.34 yuan/kg; the high price of piglets affected supplementary sentiment. This week, 15 kg piglets dropped to 529 yuan/head. Looking ahead to the first half of the year, the direction of eliminating excess production capacity in the industry is basically clear. Yongyi estimates that pork production increased 4-5% year on year in the first half of '24, indicating that supply in the pig market is still relatively relaxed. Although the market is worried that pig prices will rise after the holiday season due to factors such as secondary fertility, it is difficult to form a significant upward trend due to overall oversupply. Currently, the price of pig futures contracts is 15.13 yuan/kg, and pig prices are still expected to be below the industry cost line.

Long-term losses may have led to tight cash flow in the industry. Against the backdrop of continued sluggish pig prices, capacity removal is expected to accelerate and be highly sustainable. Currently, the industry's capacity reduction has entered the deep-water zone, and nonlinear capacity reduction may occur. According to the 3% reduction rate in the quarter, the Bureau of Statistics's energy yield will be reduced to less than 39 million heads by the end of the second quarter of '24. The pig sector has already ushered in a key layout window. The prudent standard proposal focuses on Muyuan shares (002714.SZ), Wen's shares (300498.SZ), and New Hope (000876.SZ); the flexible standard focuses on Xinwufeng (600975.SH), Dongrui (001201.SZ), Superstar Agriculture and Animal Husbandry (603477.SH), Shennong Group (605296.SH), Huatong (002840.SZ), Tang Renshen (002567.SZ), Tiankang Biotech (002100.SZ), Jingji Zhinong (000048.SZ), etc.

White chicken: Overseas introduction or continued restrictions. The medium- to long-term industry boom can be expected under the “big food view”.

Academician Hou Shuisheng's proposals at the two meetings called for a change in the concept of “safe pig food for the world” and prioritizing the development of the poultry industry. Poultry meat has a stronger future advantage. High-quality development of a food-saving poultry industry should be the first choice for solving the effective supply of meat to the Chinese people. In terms of market conditions, the contradiction between supply and demand has gradually been resolved, with broiler prices running steadily. On March 11, the pre-purchase price of chicken sheds in Yantai dropped to -0.63 yuan/kg; profits currently sold correspond to high-priced chicken seedlings in the early period, and profits may continue to decline. However, the “May Day” supplement demand supports the rise in chicken seedlings prices. On March 11, the price of young chickens in Yantai was 3.60-4.30 yuan/feather, of which the big manufacturer Yisheng quoted 4.5 yuan/feather. In the short term, there is a supply gap in March, and the price of chicken is supported, and chicken seedlings may rebound; looking ahead to the future market, the white chicken industry, which continues to expand, is expected to usher in a booming market with the transmission of upstream ancestral production capacity gaps and a marginal recovery in demand-level consumption.

The US reported 22 commercial farm outbreaks in February, and the global bird flu situation is still grim. According to the latest WOAH report, from January 27 to February 16, 2024 (3 weeks), a total of 99 new cases of highly pathogenic avian influenza were reported globally. The development situation of avian influenza in the world is still quite serious. Japan first reported cases of poultry H5N6 avian influenza infection in 24 years after 18 years. A total of 7 countries in Asia have detected poultry infected with avian influenza. Brazil, the largest chicken exporter, has reported 3 cases of poultry and 156 cases of avian influenza in wild birds as of March 8. If a poultry outbreak occurs in the world's largest chicken exporter, it will have a big impact on global chicken trade, and global genealogy tension may continue; at the same time, the worst bird flu outbreak in US history continues, with 56, 45, 13, and 7 commercial farm outbreaks reported respectively from November 23 to February 24. As of March 8, '24, the last 30 days of the bird flu outbreak in the United States had 6 cases of commercial farms and 14 cases of HPAI in household farming, and culled more than 200,000 birds. In the short term, it may continue to be one supplier state, and import introduction may continue to be restricted.

The bank anticipates the upcoming chicken cycle. From a long-term perspective, in the context of continued high food prices, white chicken as the animal protein with the lowest meat ratio will be further reflected, and the long-term growth of the industry has already been highlighted. On the other hand, the size of leading companies has clearly expanded compared to the previous cycle, and the ability to redeem profits in this cycle is expected to increase significantly compared to the previous cycle. Industrial chain profits are concentrated in the upstream breeding chain, and advantageous breeding companies may obtain excess profits. At present, the valuation is at a low level after the sector's correction. It is expected that the long-term logic of overseas introduction restrictions will continue to be verified, and the sales price and average market price of excellent seedling companies will continue to maintain their advantage in the context of import introduction restrictions. The focus is on Yisheng shares (002458.SZ), which are expected to obtain cyclical profits and barrier profits, and underestimated Baiyuji Longtou Hefeng Co., Ltd., it is recommended to focus on Xiantan Co., Ltd. (002746.SZ), Minhe (002234.SZ), and Shengnong Development (002. 2) 299.SZ) etc.

Animal insurance: Sluggish farming in 23Q4 put pressure on the performance of animal insurance companies, focusing on investment opportunities brought about by the promotion of anti-plague vaccine research and development.

Despite the peak demand season at the end of the year, the farming boom continued to be sluggish. Combined with a sharp rise in financial pressure on downstream farming companies, animal insurance companies may face greater sales pressure and repayment pressure. It is expected that the overall performance of animal insurance companies in the fourth quarter may be under significant pressure. From an industry perspective, with the release of high-quality production capacity on the supply side of the industry, industry competition intensifies, leading companies continue to increase R&D investment and new technology and new process layout. In the future, R&D and innovation in the animal insurance sector will become the key to enterprise success.

At the investment level, research and development of non-plague vaccines is progressing steadily. Among them, Asian units are leading the technology route and gene deletion inactivation technology route in stages. It is recommended to focus on milestones in data verification. The bank believes that if the vaccine is not successfully commercialized, or if it brings room for more than doubling the swine vaccine market, it is recommended to focus on potential beneficiaries such as biological shares (600201.SH), Zhongmu shares (600195.SH), Placo (603566.SH), Jinhe Biotech (002688.SZ), and pre-existing biotechnology (). 688526.SH

In addition, the triple vaccine for cats developed by many companies, including Rep Biotech, has successively passed emergency evaluations by the Ministry of Agriculture. The domestic cat triple vaccine has successfully broken the monopoly of imported brands for more than ten years, solved the problem of stuck necks in the field of cat vaccines, and is optimistic about the future import substitution of domestic brands of the cat triple vaccine. It is recommended to pay attention to Ruipu Biotech (300119.SZ).

Planting chain: Document No. 1 of 2024 focuses on the topic of food security and focuses on the commercialization process of genetically modified varieties.

The document emphasizes focusing on increasing grain production on a large scale to increase yield, ensure that grain production remains above 1.3 trillion kg, and accelerate the expansion of biological breeding industrialization. Achieving large-scale yield increases is inseparable from biological breeding and revitalization of the seed industry. Currently, the Ministry of Agriculture has announced genetically modified varieties that have passed approval. On December 26, '23, 26 enterprises obtained the first batch of production and operation licenses for genetically modified corn and soybean seeds, kicking off the commercialization of genetically modified varieties. Subsequent planting areas should comply with national breeding industrialization arrangements. As the commercialization and promotion process of genetically-modified genes begins, it may significantly open the ceiling of the seed industry and push the pattern to the head. It is expected that companies with forward-looking technical capabilities and technical reserves and breeding enterprises with excellent varieties will fully benefit. It is recommended to focus on Dabeinong (002385.SZ), Longping Hi-Tech (000998.SZ), Syngenta, and Denghai seed industries (002041.SZ).

Pets: The industry continues to expand, and leading advantages are gradually becoming prominent.

According to the “2023-2024 White Paper on China's Pet Industry (Consumption Report)” published by the Pet Industry Big Data Platform, the size of the urban pet (dog and cat) consumer market in 2023 was 279.3 billion yuan, an increase of 3.2% over 2022; Gaibao Pet issued an advance announcement of 2023 performance, which is expected to return to the mother's net profit of 4.10 to 440 billion yuan, an increase of 53.63% to 64.87% year on year; achieved deducted non-net profit of 403-433 million yuan, an increase of 54.37% to 65.86% year on year. The steady increase in profitability was gradually realized. At the investment level, the focus is on the pace of profit margins being realized at the same time as leading companies' domestic market concentration is increasing. In addition, attention can be paid to profit inflection points brought about by the bottoming out of overseas inventory cycles. The focus is on recommending Gibao Pet (301498.SZ) and Zhongchong Co., Ltd. (002891.SZ), which not only conform to the brand logic where domestic business growth is higher than the industry and profit margins are realized; at the same time, Gaibao uses methods such as acquiring Waggin Train and building its own overseas factories as ballast stones for stable overseas business profits. We recommend Tianyuan Pet (301335.SZ) and pay close attention to marginal opportunities where overseas customers of Petty Co., Ltd. (300673.SZ) and Yuanfei Pet (001222.SZ) have basically ended their warehousing and the impending inflection point in profit.

Risk warning: Fluctuations in pig prices, sudden large-scale uncontrollable epidemics, major food safety incidents, macroeconomic systemic risks, and extreme climate disasters have led to large-scale crop production cuts and boosting food prices. The introduction of ancestral chickens from overseas has recovered beyond expectations, breeding epidemics such as bird flu have broken out, and chicken prices have declined. Exchange rates fluctuated, and the recovery in consumption fell short of expectations.