The era of marginal profit: who is silently falling to the bottom and waiting for the “dividend” of pig prices to pick up? ·  May 12 15:24

① Traditional cycle fluctuations are long gone. The industry believes that the farming side is about to enter an era of marginal profit, and cost reduction is the only way out; ② Relevant pig companies have achieved obvious results in reducing costs, and the breeding costs of Wen's shares and Shennong Group are already below 15 yuan/kg; ③ against the backdrop of industry recovery, some companies that have grown this year are expected to enjoy dividends by reducing costs and increasing efficiency.

Finance Association, May 12 (Reporters Liu Jian and Wang Ping An) With the birth of a new cycle, the traditional cycle of ups and downs and huge profits is far away. How should pig companies that are rapidly expanding and burdened by debt survive in the future?

The Financial Services Association reporter learned from a number of experts that the pig industry's volatile cycle situation is improving in the future. Pig prices will hover more around the break-even line, and the breeding side will enter a period of marginal profit. Relevant companies can survive the competition only by cutting costs.

A CIFA reporter noticed that at a pig industry conference last year, Tao Yishan, chairman of Tang Renshen, pointed out, “Currently, raising pigs according to the pig cycle theory is a dead end. The only thing the industry is concerned about is cost, which is capital.”

Liu Yonghao, chairman of New Hope Group, also pointed out earlier, “The current pig cycle cannot be predicted. I hope the market will get out of the recovery period as soon as possible. The most critical thing is to stick to confidence during the trough period, adjust the scale appropriately, not expand blindly, and more importantly reduce costs and focus more on the structure.”

Future breeding costs may be a lifeline in the pig industry's fierce competition. Pig companies such as Muyuan Co., Ltd. (002714.SZ), Wen's Co., Ltd. (300498.SZ), and New Hope (000876.SZ) have mentioned several times in institutional research since 2023. The company's main work goals are to reduce production costs, manage cash flow, and reduce the balance ratio level.

In terms of listed companies, major pig companies have vigorously stepped up their cost reduction, and have achieved good results. Judging from the cost of the latest listed pig companies in March, Wen's shares and Shennong Group (605296.SH) are already below 15 yuan/kg, at 14.8 yuan/kg and 14.5 yuan/kg respectively. Muyuan Co., Ltd., New Hope and Tianbang Food (002124.SZ) are also close to 15 yuan/kg. As major pig companies approach the balance of breeding profits, if pig prices continue to pick up in the second half of the year, the relevant pig companies' financial reports for 2024 are expected to recover.

(Data source for pig companies' annual cost change chart: announcement)

According to Zhu Zengyong, a researcher at the Beijing Institute of Animal Husbandry and Veterinary Medicine of the Chinese Academy of Agricultural Sciences, “Pig prices in April this year were still basically the same as the same period last year. The breeding side lost money in April last year, but the entire industry has basically achieved break-even this year, mainly because costs are on a downward trend this year. So in general terms this year, I think in the context of a moderate rebound in pig prices, farming may achieve marginal profit to a small profit.”

Zhu Zekunze of Zhuochuang News said, “In fact, pig farming is now about fighting costs; because costs are reduced a little, profits can be made a little more. Currently, the efficiency of use of sows in our country and the ratio of feed have not reached the level of optimal cost in developed countries, so there is still plenty of room for improvement in future costs.”

Qin Yinglin, chairman of Muyuan Co., Ltd., put forward a similar opinion before. “We can improve our technology, improve efficiency, and reduce costs. If we cut costs later, we don't need to be afraid of the pig cycle. Therefore, no one can avoid the pig cycle now, but we must be working ourselves to reduce costs, and to reduce our costs by innovating technology. The number of young produced by our pigs is still relatively low, and there is still a big difference in the amount of meat each of our pigs produces. Well, at this point, we discovered that this gap is an opportunity; it is our effort. We're comparing that if we can raise as high as Danish pigs, then the cost of at least 600 yuan per pig will drop. I think this is my goal.”

It is worth noting that in the context of the recovery of the industry, some pig companies have increased or increased significantly this year. With the help of cost reduction and efficiency, relevant pig companies are expected to fully enjoy the dividends of the recovery. Judging from the increase, Muyuan Co., Ltd. and Wen's shares still take the lead, but in terms of growth rate, Shennong Group and Superstar Agriculture and Animal Husbandry (603477.SH) occupy the leading positions.

(Data source for listing pig growth companies: announcement)

The translation is provided by third-party software.

The above content is for informational or educational purposes only and does not constitute any investment advice related to Futu. Although we strive to ensure the truthfulness, accuracy, and originality of all such content, we cannot guarantee it.
    Write a comment