Intelligent finance and economics APP learned that China Galaxy Securities released a research report stating that short-term pig prices may continue to fluctuate and rise in Q3; however, due to the impact of the scale of secondary breeding, short-term fluctuations in pig prices will be intensified: the average annual pig price in 2024 will be higher than the same period last year, and H2 prices will be better than H1 with high certainty. It is recommended to focus on cost control, industry leaders with sustained growth, relatively healthy financing, and reasonable valuation of pig enterprises. Livestock and breeding chain is currently the focus, suggesting a focus on the layout opportunities for the downturn in the hog farming industry. There is a certain correlation between yellow chicken prices and pig prices, and considering the low supply side, there may be an upward trend in prices in the future.

China Galaxy Securities' main points are as follows:

In May, the year-on-year increase of pig prices led to a 0.3% increase in CPI. China's CPI increased by 0.3% year-on-year in May, with positive growth for four consecutive months. Among them, food decreased by 2.0% year-on-year, among which pork increased by 4.6% year-on-year; CPI decreased by 0.1% month-on-month, among which food remained the same and pork increased by 1.1% month-on-month. In May, China's agriculture imports amounted to 19.78 billion US dollars, exports amounted to 8.564 billion US dollars, and the trade deficit was 11.216 billion US dollars (a decrease of 24% year-on-year).

In June, pig prices broke through 18 yuan/kg and the profitability significantly improved. According to Boya Hexun, pig prices rose and then fell in June, reaching 18.27 yuan/kg on June 21, an increase of 4.52% compared with May; on June 21, breeding and feeding piglets for self-breeding and external purchase respectively gained a profit of 382.68 yuan/head and 366.56 yuan/head. As of May 24 year, there were 3,996 sows in stockyards, an increase of 0.25% from the previous month and a decrease of 6.2% year-on-year. China Galaxy Securities believes that in the short term, pig prices in Q3 may continue to fluctuate and rise, but short-term fluctuations will be intensified due to the impact of the scale of secondary breeding: in the medium to long term, the average annual pig price in 2024 will rise year-on-year, and H2 prices will be better than H1 with high certainty. It is recommended to focus on cost control, industry leaders with sustained growth, relatively healthy financing, and reasonable valuation of pig enterprises.

In Q1, 290,000 sets of Baiji ancestry were updated, and the seedling price fell in the off-season in June. In Q1 24, 289,700 sets of ancestry were updated, of which 38% were imported and 62% were domestically self-raised. On June 9, there were 21.55 million sets of mother chickens in stock, in a historical high interval, and the current capacity is relatively sufficient. According to Boya Hexun, the price of Shandong Yantai chicken seedlings continued to decline in June, from 3.3 yuan/bird at the beginning of the month to 2.6 yuan/bird on June 21. The white chicken industry is in the early stage of an upward cycle, and can be monitored in a grouped manner with relatively low valuations in the historical area of the sector.

In June, the agricultural index underperformed the CSI 300 index. From the beginning of June to the 21st, the agricultural, forestry, animal husbandry, and fishery index fell by 8.29%, while the CSI 300 index fell by 2.35%. Among the sub-sectors, the farming and fodder sectors performed relatively well, with a decrease of 6.70% and -8.71%, respectively, while the fishery sector (-15.49%) performed poorly.

Investment advice:

Livestock and breeding chain is currently the focus, suggesting a focus on the layout opportunities for the downturn in the hog farming industry. Considering the existing length of age loss in the industry and the degree of liquidation of sows in the future, coupled with the expected intensification of supply and demand contradictions, key attention should be paid to high-quality pig enterprises that have significant changes in cost margins and good financing, including Muyuan Foods (002714.SZ), Wens Foodstuff Group (300498.SZ), and Tecon Biology Co., Ltd. (002100.SZ).

There is a certain correlation between yellow chicken prices and pig prices, and considering the low supply side, there may be an upward trend in prices in the future, and attention can be paid to Jiangsu Lihua Animal Husbandry (300761.SZ). It is also important to focus on the post-cycle block of the breeding chain, including the feed leader Guangdong Haid Group (002311.SZ) and the Shenzhen Agricultural Products Group that focuses on aquatic animal feed (001313.SZ); at the same time, it is important to pay attention to the launch of new animal vaccines, and China Animal Husbandry Industry (600195.SH), Pulike Biological Engineering, Inc. (603566.SH), etc. are recommended. The overall Baiji industry is in the early stage of an upward cycle and can be monitored in a grouped manner.

Risk warning: Risks of livestock and poultry prices falling short of expectations, risks of animal diseases, risks of fluctuations in raw material prices, risks of policy, risks of natural disasters, etc.