Zhongtong Securities released a research report stating that short-term price corrections of pigs do not change the medium-term trend of prosperity. With the previous population reduction transmission, the supply of live pigs is expected to continue to decrease, coupled with a gradual recovery of seasonal consumption, pig prices are trending upwards. Currently, the industry's replenishment speed has slowed down, and the profit time of this round of the cycle is expected to lengthen. As for White-feathered broiler, from the perspective of supply and demand, the reduction in commercial hatches has been reflected in the rapid rise of commercial hatching chicken prices from January to February of 2024, with 4.01/12.88/0.06 billion yuan respectively. It has fallen back since March but still remains strong. With the gradual transmission of limited breeding, plus the boost of consumption and pig prices in the second half of the year, the price of White-feathered broiler is expected to rise.

Huafu Securities' main points are as follows:

Hog farming: The short-term price adjustment of pigs does not change the upward trend of the overall situation.

With the increase in output and sales, pig prices continue to fall. The numbers of small-scale pig farmers and breeders in the north have increased significantly, and the group has accelerated its sales progress in the latter half of the month. Coupled with poor consumer performance, pig prices have continued to decline. On June 21, the price of pigs was 18.25 yuan/kg, a decrease of 1.83% week-on-week. The breeding profits of self-bred/self-raised and purchased piglets were 382.68/366.56 yuan/head respectively, a week-on-week decrease of 30.58/-29.55 yuan/head.

Although the slaughter volume has recovered slightly, it is still at a low level. After the price reduction of pigs, the sales of slaughter enterprises have slightly improved, and the slaughter volume has risen from a low level, but the overall rebound effect is still limited and is still at a low level this year. On June 21, Yungyi sample slaughter enterprise slaughtered 130,000 pigs, up 7.08% week-on-week. Terminal consumption is still sluggish. Slaughter enterprises mainly rely on fresh sales, and there are some categories of segmented products that have been passively stocked due to unsalable products, and the inventory of frozen products has grown slightly. On June 21, the national frozen product storage capacity rate was 16.64%, up 0.54% week-on-week.

The proportion of small piglets sold has increased, and the impact of the rainy season epidemic in the south is being constantly monitored. The output of secondary fattening and small pig farmers in the early stage increased, driving up the proportion of large pigs sold and the weight of live pigs traded. From June 14th to 21st, the proportion of pigs weighing over 150kg sold was 4.95%, up 0.11% week-on-week. The average weight of live pigs sold nationwide was 126.29 kg, up 0.01% week-on-week. Some provinces in the southern region have been affected by rain, and the proportion of small pigs sold with low body weight has increased. From June 14th to 21st, the proportion of pigs weighing below 90 kg sold was 3.89%, up 0.26% week-on-week, and the impact of the rainy season epidemic in the south is being closely monitored.

Zhongtong Securities believes that short-term price corrections of pigs do not change the medium-term trend of prosperity. With the previous population reduction transmission, the supply of live pigs is expected to continue to decrease, coupled with a gradual recovery of seasonal consumption, pig prices are trending upwards. Currently, the industry's replenishment speed has slowed down, and the profit time of this round of the cycle is expected to lengthen. It is recommended to pay attention to Muyuan Foods (002714.SZ), Leshan Giantstar Farming&Husbandry Corporation (603477.SH), Wens Foodstuff Group (300498.SZ), Hunan New Wellful (600975.SH), Zhejiang Huatong Meat Products (002840.SZ) and other companies.

White-feathered broilers: The restriction on imports is gradually transmitted, and the prosperity of White feathered broilers is improving.

The mood for replenishment is not good, and seedling prices hit a new low for the year. During the previous replenishment, the corresponding time for broilers was during the period of 'Sanfu Days' from mid-July to mid-August, and the difficulty of broiler breeding increased. The demand for broiler chicks by breeders decreased. And because of the losses in the breeding sector, most breeding households have a strong emphasis on controlling the cost of chicks, and the mood for replenishment is cautious, and the price of seedlings continues to decline. On June 21, the price of white-feathered broiler chicks was 2.30 yuan/piece, down 1.29% week-on-week. The price of white-feathered broiler was 7.17 yuan/kg, up 2.28% week-on-week. The breeding profit of parent chickens/white-feathered broilers respectively was -0.40/-3.01 yuan/piece on June 21, with a week-on-week decrease of 0.03/+0.31 yuan/piece.

The supply and demand pattern is expected to improve in the second half of 2024, and the price of white-feathered broilers is expected to rise. Under the influence of the 'flight restrictions + bird flu' epidemic, the proportion of grandparent stock replacements in 2022 has decreased by nearly 25% compared with the same period last year. As for the grandparent stocks, the overseas introduction has been continuously restricted since May 2022, and the total amount of domestic-bred species has increased. However, there may be problems of efficiency decline due to structural changes. As for the parent stocks, the imported breed has been blocked since May 2022, and it will gradually affect the parent stocks in production from the second half of 2023 and cause a sharp drop. As for the commercial stocks, it is judged that the reduction of commercial stocks may have been reflected in the rapid rise of commercial hatching chicken prices from January to February of 2024, with 3.01 billion yuan which has fallen back since March but still remains strong. With the gradual transmission of limited breeding, plus the boost of consumption and pig prices in the second half of the year, the price of white-feathered broiler is expected to rise. It is recommended to pay attention to Fujian Sunner Development (002299.SZ), Shandong Minhe Animal Husbandry (002234.SZ), Shandong Yisheng Livestock & Poultry Breeding (002458.SZ) and other companies.

Seeds: The revitalization of the seed industry has been emphasized again, and policy will promote the achievement of another landmark in 2025.

On June 7th, the Ministry of Agriculture and Rural Affairs held a video conference to summarize the results of the "three-year foundation-laying" stage and to study and deploy the work of accelerating the revitalization of the seed industry, pushing for significant progress in the "five-year progress" of the revitalization of the seed industry. The meeting emphasized the need to accelerate innovation in seed industry and breakthrough in variety breeding, focus on supporting the development of advantageous enterprises, and ensure the achievement of a new batch of iconic results by 2025. On February 3rd, the first central document pointed out the "acceleration of the revitalization of the seed industry and the promotion of the industrialization and expansion of biological breeding", which provided strong support for the further acceleration of the industrialization of biological breeding.

Huafu Securities believes that currently multiple transgenic varieties have been officially approved in China, and the commercialization of transgenic technology will promote market expansion and industry concentration, enabling leading seed companies to fully benefit from the first-mover advantage. It is suggested to pay attention to Beijing Dabeinong Technology Group (002385.SZ), Yuan Longping High-Tech Agriculture (000998.SZ), Shandongdenghai Seeds (002041.SZ), and Winall Hi-Tech Seed (300087.SZ).

Risk Warning: Outbreak of animal diseases, fluctuation in commodity prices, natural disasters, and other risks.