Financial Services Association, May 12 (Reporters Liu Jian and Wang Ping An) Who is behind the cycle failure? Mr. Lu, who has experienced African swine fever, felt it very deeply. “I think it's capital. Raising pigs was very profitable after African swine fever in '19.”

This is also the common opinion of many people and experts in the farming industry chain — after African swine fever, farming profits rose sharply in the short term, and average profit reached a record high. The industry was too optimistic about the subsequent market, attracting large amounts of capital to enter, which led to a rapid increase in the number of breeding sows, and continued oversupply of pork production capacity.

According to Choice data, starting in March 2019, self-supporting profits rose rapidly, reaching a record high in November of that year. The average head profit exceeded 2,900 yuan/head, and remained high for the next 15 months.

Pig farming in that year can be considered the most profiteous industry. In an interview with reporters, Mr. Lu recalled, “I earned almost 2 million dollars in a year. I can still remember how I felt at the time. I was very excited. Moreover, many people at the time thought that the effects of the plague would continue for 3-4 years, but they didn't expect production capacity to recover quickly in just a year or two.”

According to Xie Zefeng, chief analyst at the national (Chongqing) pig data center, “2019 can be said to be the highest market in history. At that time, a sow earned about 20,000 yuan a year, and a small farmer raised 100 sows to earn millions. Under these circumstances, everyone wants to raise pigs, which has also led to a large influx of foreign capital.”

(Self-growing profit trend chart image source: wind)

In fact, the 2019 financial reports of listed pig companies also show that year's “big market”. Wen's shares (300498.SZ) achieved net profit of 13.906 billion yuan in that year, a record high, while Makihara (002714.SZ) and New Hope (000876.SZ) made profits of 6.114 billion yuan and 5,042 billion yuan respectively. Among them, the gross sales margin and net margin of Makihara Co., Ltd. were 35.95% and 31.34% respectively, all of which reached record highs.

Profitability has spooked people's hearts. The boom in capital pig farming quickly began, and production expansion became a common phenomenon in the industry. In the first half of that year alone, there were new hopes, Wenshi Shares, Zhengbang Technology (002157.SZ), Makiyuan Co., Ltd., Aonong Biology (603363.SH), Tianbang Foods (002124.SZ), Jingji Zhinong (000048.SZ), and Jin Xinnong (002548.SZ), and nearly 10 listed pig breeding companies announced additional pig breeding, among them only Xinhope, Muyuan shares, and Zhengyuan shares. Bang Technology has spent more than 23 billion yuan -- new hope in mid-2021 They even called out a target of not less than 66 million pigs to be released in 2023; Zhengbang Technology proposed a three-way plan to “grab talents, grab sows, and grab pig seedlings”; Muyuan Co., Ltd.'s “100 Markets 10 Million” project has also officially started.

Mr. Lu felt this very deeply. “In that year, not only did big companies frantically expand production, but cross-border pig farming also became a trend. Internet companies raised pigs; real estate companies, leather companies, landscaping companies, and steelmakers all raised pigs; they all wanted to share the 'cake' after swine fever.”

The power of capital cannot be ignored. In just two years, production capacity picked up rapidly, and the once profiteous industry began to be extremely sluggish. “Earlier, some experts thought it might take about 4 years for domestic production capacity to recover after African swine fever. I thought the same way at the time. I thought this good market would continue, but I didn't expect production capacity to recover quickly in just 2 years.” Mr. Lu said.

Capital intervention has rapidly expanded production capacity, and the share of large-scale enterprises has risen sharply. According to public data, in 2018, the market share of 15 listed companies was 7%; in 2021, the market share reached 15%; in 2022, the market share quickly reached 19%; by last year, the total number released had even exceeded 160 million heads.

(Listed pig companies' listing data source: announcement)

Take New Hope as an example. The number of releases from 2019 to 2023 increased significantly year by year, with 3.55 million heads - 8.3 million heads - 9.98 million heads - 14.62 million heads - 17.68 million heads.

Under the capital boom, the scale of listed pig companies has rapidly risen, but retail investors have gradually drifted away. In an interview with reporters, a farmer who has been in the pig industry for many years said, “Actually, I have been raising pigs for many years. My wife and I went out to do other jobs and waited until the market was good and came back to continue raising them, but after going out in the first half of last year, they didn't come back to continue raising. The pressure behind the current market is not something that ordinary retail investors can handle.”

According to Yan Meiling, a pig analyst at the Shanghai Steel Union, “The reason behind the crazy expansion of pig production is mainly because after the outbreak of African swine fever, the high dividend period was so rare. It was a profiteering period for the entire industry, and this phenomenon rarely occurred in other industries. Therefore, after that, a large amount of foreign capital came in, spawning large-scale production expansion, but under the pressure of large-scale enterprises, retail investors who left when the market was sluggish may not return.”