According to the IntelliNews App, as of June 12, nearly 20 A-share listed hog companies have disclosed their hog sales situation in May 2024. Overall, sales volume has generally decreased year-on-year, while sales revenue has generally increased, and the average sales price has mostly increased month-on-month. In addition, according to the monitoring of the Ministry of Agriculture and Rural Affairs, since mid-May, national pork prices have continued to rise. In the first week of June, the national pork price increased by 4.7% MoM and 15.3% YoY. Institutions point out that hog farming has already reached the bottom of the cycle and is at the dawn before a significant investment opportunity. Related symbols: Cofco Joycome (01610), WH Group (00288), Yurun Food (01068).

After bottoming out in March and April, the upward trend of pork prices became more obvious in mid-to-late May. Data from the Ministry of Agriculture and Rural Affairs monitoring shows that in the first half of May, the national average wholesale price of pork hovered around 20.5 yuan/kg, and on May 31, it rose to 22.66 yuan/kg. The upward trend in pork prices has continued in early June, and on June 11, the average wholesale price of pork rose to 24.6 yuan/kg.

Regarding the current rise in pork prices, Xu Hongzhi, a senior analyst at Bric Agriculture Big Data, said that since 2023, the process of reducing hog production capacity has continued for more than a year, and the situation where the capacity of fatteners has declined since the Spring Festival of 2024 has been formed and continued. At the same time, last winter, the survival rate of piglets was lower than the normal level of the same period in previous years due to the epidemic and low temperature disturbances. The fattening pigs in the spring and summer of this year saw a significant reduction in slaughter volume. The combination of the two has turned the second quarter of the traditional off-season of the hog market from oversupply to a tight balance between supply and demand, pushing hog prices continuously upward.

Due to the recovery of pork prices, the performance of many hog companies has also begun to recover. Lei Liugong, Director of the Market and Information Division of the Ministry of Agriculture and Rural Affairs, said at a press conference in mid-April that with the gradual manifestation of the effect of reducing hog production capacity, the number of breeding sows, medium-to-large pigs, and newborn piglets had shown a downward trend. The supply-demand relationship in the hog market improved further in the second quarter, and hog farming may turn from loss to profit.

In May of this year, the average sales price of many hog companies has increased month-on-month, such as Muyuan Foods, Wens Foodstuff Group, New Hope Liuhe, and ST Tianbang. Among them, the average sales price of Zhengbang Technology's commodity pigs (excluding piglets) was 15.05 yuan/kg, up 9.11% MoM, weighing an average of 129.51 kg/head, down 4.79% MoM.

In terms of costs, many hog companies such as Wens Foodstuff Group have achieved significant results in cost control. The fully loaded cost of hog farming for Muyuan Foods in May of this year was around 14.3 yuan/kg, which was a decrease of about 0.5 yuan/kg from April, and the cost decrease was due to production improvement, lower fodder prices, and decreased period expense amortization due to the increase in slaughter volume.

In addition, in the first quarter of this year, the fully loaded cost of hog farming for Tecon Biology was 15.99 yuan/kg. Among them, the fully loaded cost in March had dropped to 15.33 yuan/kg, while the cost in April was basically the same as that in March.

Xu Hongzhi pointed out that at present, leading hog companies have reduced the fully loaded cost of hog farming to the level of 7-7.5 yuan/jin, and can achieve good profits at the current pork price. At present, the cost of hog farming has significantly decreased, and the role of lower fodder raw material prices is significant.

For the future outlook of pork prices, China Post Securities research reports pointed out that from December 2022 to April 2024, the industry capacity has already reduced by 9.2%, especially the industry capacity reduction has significantly accelerated in the fourth quarter of 2023. According to calculating the number of hogs slaughtered 9 months after the sow's impact, it is expected that hog supply will significantly decrease in the second half of this year. Also, under the repeated blows of losses, Er Yu has become more cautious. Its temporary impetus impact has weakened significantly. The decrease in supply and the weakening of disturbances such as Er Yu are expected to drive the hog price to continue to operate above the cost line. The industry is still at the beginning of a cycle, and there is still significant upward space for the industry.

Shanxi Securities believes that there are significant differences in the characteristics of sow replenishment since early 2024, which is a bottom end of the cycle, unlike the rebound but not reversal of pig prices in 2021 and 2022. Although the domestic pig and piglet prices have shown a trend of shaking and rising since January 2024, the inventory of sow has continued to decline compared to the previous month from January to April 2024.

The bank renewed its view that the industry's ability and willingness to replenish sows may have been significantly weakened due to its own financial situation, financing constraints, and the impact of repeated bottoming out of pig prices over the past four years. Cost reduction and efficiency enhancement have become the more frequently used words in the industry in the past half year, and the bottoming cycle is expected to enter the final stage. Hog farming cycle has been at the bottom end of the cycle and before dawn. Currently bullish on investment opportunities in hog farming stocks.

Related concept stocks:

Cofco Joycome (01610): Cofco Joycome is betting on a rebound in pig prices and expanding production against the trend. On April 18th, Cofco Joycome's 662,400 environmentally friendly and healthy live pig breeding project in Taonan City, Jilin Province officially started. The total investment of the project is about 10 billion yuan, and it is planned to be built in stages with an annual output of 3 million environmentally friendly ecological live pig breeding industry chain project. The first phase of the project has a total investment of 2.014 billion yuan and will build an annual output of 662,400 live pig breeding base and supporting facilities.

WH Group (00288): Overseas business accounts for a high proportion of WH Group's operations. CICC pointed out that the first quarter profit of WH Group's 2024 fiscal year outperformed market expectations, mainly due to a significant reduction in losses in the US pork business. During the period, revenue fell 8.3% year-on-year, while operating profit and core net profit attributable to equity shareholders increased 37.3% and 73% year-on-year, respectively. Operating profit in the Chinese market fell 10.4% year-on-year, while operating profit in the US and Europe markets increased 208.1% and 156.5% year-on-year, respectively.

Yurun Food (01068): One of the largest meat processing companies in China, offering fresh and frozen meat, as well as low-temperature and high-temperature meat products mainly made from pork. In 2024, the group will continue to increase sales of their core products, and carry a specialist position in low-temperature meat filling products, strengthen the dominant sales position of "Yurun Red Sausage" in different regional markets, dig deeper into the traditional values of "Yurun", and enhance the R&D and improvement of traditional specialty products.