Production capacity is slowly being removed: pig companies' debt ratios are rising, and “they can handle it” even though the pressure is high ·  May 12 15:22

① After the crazy expansion boom, farming profits declined rapidly, listed pig companies lost serious losses, and the average balance ratio continued to soar; ② However, even with losses, the production capacity of listed pig companies with strong ability to withstand pressure was still difficult to remove, and the oversupply situation continued.

Financial Services Association, May 12 (Reporters Liu Jian and Wang Ping An) The pig farming boom has begun. The proportion of large-scale pig farming has increased rapidly, production capacity has quickly recovered, and it has been slow to drop. “Before 2017, the proportion of retail investors was quite large, and the number of retail sows would also fluctuate relatively large, further driving the evolution of the pig cycle.” An industry insider said.

A Financial Services Association reporter noticed that the traditional pig cycle industry is expanding production, but when production capacity is removed after overcapacity is overcapacity, it is possible to maintain a corresponding pace, promoting the normal operation of the pig cycle. However, degeneration in this cycle is very slow, and the breeding sow base continues to be high, remaining at a high level of 39.92 million heads after more than 1 year of continuous degeneration.

In an interview with a reporter from the Financial Federation News Agency, many experts in the farming industry all believed that due to the scale of farming, retail investors are more flexible in their farming model, are more sensitive to prices, and can quickly withdraw when the market is sluggish. However, with the increase in scale and industrial concentration, the share of retail farmers continues to decline, while the share of large-scale enterprises with strong financing capacity, strong disease resistance, and strong loss resistance continues to rise. Even though the market is sluggish and debt pressure is high, the production capacity of these enterprises is still difficult to eliminate, causing the oversupply situation to continue.

A CFA reporter combed through and found that between 2018 and 2023, 10 of the 17 listed pig companies had a compound annual growth rate of more than 20%, and 6 of them even exceeded 60%.

Listed pig companies' debt ratios also continued to soar. According to data, as of the end of last year, the average balance ratio of listed pig companies was 67.42%, 63.72% and 55.63% for the same period in 2022 and 2021, respectively. The debt ratio has continued to rise in the past two years. Thirteen listed pig companies have balance ratios of over 60%, and some pig companies have even become insolvent.

(Data source for average debt ratio of listed pig companies: Choice)

However, against the backdrop of high debt and high loss pressure, the production capacity of listed pig companies with strong ability to withstand pressure is difficult to remove. As of January of this year, although production capacity has been reduced continuously for 12 months, the relevant data on the production capacity of large pig companies has not changed much. The top 20 pig companies had 8.963 million heads at the beginning of 2023, and 8.911,300 heads at the end of the year, down only about 50,000 heads. Among them, companies such as Muyuan Shares, Wen's Shares, Twins, and Dekang Group did not even drop but rise.

In fact, during the two sessions this year, Liu Yonghao, chairman of New Hope Group, once pointed out, “According to the rules of the normal cycle, about every four years, we should now enter an upward phase. However, the situation is different now. The previous model with retail investors and small households as the core has become a model where large-scale and systematic pig farming is gradually gaining the upper hand. Companies that have invested a lot of money and are unwilling to go down are continuously trying to improve their management capabilities, thus lengthening the pig cycle. Second, with technological progress, management improvements, and policy implementation, pig farming efficiency is gradually improving. Coupled with insufficient consumption growth and changes in the degree of matching between supply and demand, these will all lead to a lengthening of the pig cycle.”

In the context of capital “support,” enterprises are afraid to lose money and lose production capacity. Zhu Zekun said, “Through our research on enterprises, we have discovered that large-scale enterprises are now extremely capable of withstanding pressure. As long as the current company is profitable, even if the profit is small or even a slight loss, it can accept it and expand production to a certain extent. Because it is impossible for a company to lose money, it is impossible to eliminate production capacity in the early stages.”

The translation is provided by third-party software.

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