According to a research report by Huachuang Securities, due to the bullish sentiment on hog prices in the second half of the year, the current pig prices are supported from the downside by the confidence of hog breeders and from the upside by the expected reduction in supply. The overall price is expected to rise and is difficult to fall, and the effect of the previous capacity digestion is expected to be realized. Corresponding to the stock price level, although the market has undergone short-term adjustments, it is expected that the mid-to-long term market will continue to trade with a logic of rising prices on the right side, and the stock price is expected to follow the hog price volatility. It is recommended to focus on the positioning window before the price quickly rises.

Huachuang Securities' main views are as follows:

In May 2024, 12 listed hog companies achieved a total sales revenue of 21.127 billion yuan, a year-on-year increase of 11.41%. Among them, the company with the highest year-on-year growth rate was Dongrui Co., Ltd., with a year-on-year growth rate of 62.34%; the lowest was *ST Zhengbang, with a year-on-year decrease of 30.19%. In terms of prices, according to Yongyang Consulting data, the average sales price of hogs in May was 15.79 yuan/kg, an increase of 0.69 yuan/kg from April. Among the seven listed hog companies (excluding Dabeinong, Tangrenshen, Huatong Meat Products, Kingsino Technology, and Luoniushan), the highest sales price was 16.90 yuan/kg for Dongrui, and the lowest sales price was 14.86 yuan/kg for Tecon Biology, with a total of four sample companies selling at an average price lower than the May Yongyang Consulting’s statistics of the average hog price of 15.79 yuan/kg. The average frozen product storage capacity rate in May was 14.39%, a decrease of 0.24 percentage point from the previous month, and a decrease of 2.24 percentage points from January 2024. It has been in a digestion state since January.

In May 2024, 13 listed hog companies sold a total of 12.155 million hogs, a year-on-year decrease of 1.33%. Among them, HuaTong Meat Products (272,300 hogs, up 39.19% YoY), Dongrui Co., Ltd. (69,900 hogs, up 28.73% YoY), and Dabeinong (519,600 hogs, up 14.55% YoY) had the highest year-on-year growth rates. Aonong Biological Technology (142,800 hogs, down 71.42% YoY), *ST Zhengbang (247,500 hogs, down 41.02% YoY), and Tech-bank Food (556,300 hogs, down 15.87% YoY) had relatively lower year-on-year growth rates.

The average weight per hog at the industry level decreased sequentially to 125.92 kg. According to Yongyang Consulting, the average weight of hogs slaughtered in May decreased to 125.92 kg, a decrease of 0.26% month-on-month and an increase of 3.33% year-on-year. Muyuan Foods had an average weight of 114.90kg per hog in May, an increase of 1.25% month-on-month. The sample hog companies, Wens Foodstuff Group, Dabeinong, and *ST Zhengbang, had average weights of 123.75 kg, 123.54 kg, and 129.51 kg for commodity hogs, respectively, with changes compared to the previous month of -0.23%, +1.55%, and -4.79%. In May, the average weight of hogs for trade first decreased and then increased. In the first 10 days, the willingness of farmers to sell was affected, and at the same time, the enthusiasm of the breeders to fatten for the second time was high, so the weight slightly decreased. In the second 10 days, with the rise in prices and the realization of the previous fatten and farmer breeding capacity, the average weight of hogs for trade increased.

The market for second-generation hog breeds and commodity hogs has increased, driving the sentiment for piglet restocking. Wind data shows that the average sales price of piglets in 22 provinces across China was 47.03 yuan/kg in May, a decrease of 1.68% month-on-month and an increase of 20.86% year-on-year. According to announcements by listed companies, *ST Zhengbang sold 131,300 piglets in May, a month-on-month increase of 140.92%, and the proportion of piglets sold increased to 53.05%. Tech-bank Food sold 168,000 piglets, a month-on-month increase of 16.42%, and the proportion of piglets sold decreased to 30.20%. Tangrenshen sold 23,500 piglets, a month-on-month decrease of 54.10%, and the proportion of piglets sold decreased to 7.19%. Kingkey Smart Agriculture Times sold 47,800 piglets, a month-on-month increase of 21.01%, and the proportion of piglets sold increased to 21.00%. Shennong Group sold 10,100 piglets, a month-on-month decrease of 18.55%, and the proportion of piglets sold decreased to 5.38%.

Short-term spot prices are volatile, and after the release of sentiment, the upward trend is expected to continue. Last week (June 10 to June 16), the slaughter volume trended lower, while the hot weather accelerated the release of second-generation hog breeds. Spot prices rose and then fell, with Yongyang Consulting's latest average national hog price on the 16th at 18.81 yuan/kg, and the average weight increased slightly to 126.28 kg. Piglet prices rose to a high level, with a price of 807 yuan/head for 15 kg piglets, and mother pig prices rose from the bottom, with a mainstream price of 1,624 yuan/head for 50 kg two-yuan mother pigs.

According to the Farmer's Daily, the industry had a total of 39.96 million breeding pigs at the end of May, a slight increase of 0.25% over the previous month. Huachuang Securities predicts that the industry's breeding stock or stability can be maintained with a relatively high asset-liability ratio. At the same time, the number of newborn piglets nationwide from December last year to May this year decreased by 7.0% compared with the same period last year, which indicates that the volume of pigs to be slaughtered and put on the market in the next six months may decrease compared with last year. The sustainability of the future market may be anticipated.

Stock selection perspective: (1) From the perspective of long-term cost optimization and high-quality development, focus on Muyuan Foods (002714.SZ) and Wens Foodstuff Group (300498.SZ); (2) From the perspective of significant cost improvement and sufficient reserve of funds, some companies may step on the rhythm of this cycle in their expansion, with a focus on Tangrenshen Group (002567.SZ), Leshan Giantstar Farming & Husbandry Corporation (603477.SH), Zhejiang Huatong Meat Products (002840.SZ), DongRui shares (001201.SZ), Hunan New Wellful (600975.SH), New Hope Liuhe (000876.SZ), and Tecon Biology Co. Ltd (002100.SZ), and more.

Risk warning: fluctuation in the price of live pigs, outbreak of uncontrollable epidemic diseases, major food safety incidents, systemic risks in macroeconomic system, and extreme weather disasters leading to a significant reduction in crop yields and pushing up grain prices.