Pig prices are mostly dominated by supply, and demand changes are very limited. The long lag between falling production capacity and rising pig prices brings about cycle certainty. Changes in body weight are still controversial, but it is more likely that the upward cycle pressure will drive up pig prices.
The Zhitong Finance App learned that Zhishang Securities released a research report saying that pig prices are mostly driven by supply, and demand changes are very limited. The long delay from falling production capacity to rising pig prices brings cycle certainty. Changes in body weight are still controversial, but it is more likely that the upward cycle pressure will drive the rise in pig prices. Since the fourth quarter of 2023, the sector's investment logic has transitioned from “depreciation of trading capacity” to “rising trading pig prices”, and price increases in the next few months will become the core catalyst for the sector. Currently, most of the average market values estimated by listed pig companies based on their 2025 target sales volume are in historically low quantiles. A positive layout is recommended. Focus on Muyuan Co., Ltd. (002714.SZ), Wen's shares (300498.SZ), and it is recommended to focus on superstar agriculture and animal husbandry (603477.SH), Huatong shares (002840.SZ), and Shennong Group (605296.SH).
Starting on the right, I am optimistic that pig prices will rise above 20 yuan/kg in the future
Zheshang Securities believes that the biggest difference in the pig sector at present is that the industry expects future pig prices to be highly limited from the perspective of the absolute value of sows, but is relatively optimistic about future pig prices based on current prices and changes in marginal supply and demand. As of the end of March 2024, there were 39.92 million breeding sows nationwide, which is still higher than the national target for breeding sows. Based on this, the market judges that sow production capacity is sufficient, and believes that future pig price increases will be average.
However, judging from the historical pig cycle, the accuracy of using the absolute value of production capacity to determine the high point of pig price is limited. From June 2021 to April 2022, the total removal of the national sow population was 8.5%, corresponding to a cumulative reduction of 8.5% of the country's breeding sows, corresponding to the price of pigs breaking 27 yuan/kg in October 2022, doubling from the bottom of the previous pig price. From the end of 2022 to March 2024, breeding sow stocks have already been reduced by 9.1%, corresponding to future pig price increases, and the current capacity gap of nearly 10% is likely to be greater. The pig price of 15 yuan/kg rose to more than 20 yuan/kg. At the same time, the balance ratio of the sector continues to rise or will limit the expansion of production capacity. After pig prices continue to rise, sow breeding can recover at a lower rate than in the previous cycle.
May-September may be the core phase of the rise in stock prices
Zheshang Securities pointed out that in historical pig cycle investments, the two stages with the best stock price performance are often the “phase of accelerated removal of production capacity at the bottom of the previous cycle” and “the first half of the new cycle of pig price increases.” May-September may not necessarily be the highest in pig prices, but it is expected to be the period when the increase is expected. The number of newborn piglets began to decline sequentially in October 2023. Corresponding to the inflection point of pigs appearing around April 2024, May may become a key point for pig prices to start rising. The capacity gap was realized in June-September, secondary fattening, and increasing sentiment. Pig prices are expected to continue to rise above expectations, catalyzing stock prices to enter the main upward wave.
Risk warning: Production capacity removal falls short of expectations, sales volume falls short of expectations, and raw material prices have risen sharply.