On July 13, Caixin News (reporter Liu Jian, Wang Ping'an) reported that the pig cycle is starting, and swine breeding is entering a profitable period. As the animal protection industry, which is driven by demand from downstream breeding, there are signs of a rebound.

According to interviews conducted by Caixin News reporters with many industry insiders, when the pig cycle is in an upswing and breeding profits rise, the demand for epidemic prevention in the downstream breeding end is expected to strengthen, thereby promoting the recovery of animal protection demand. At present, the upstream animal protection sales are showing a good trend. Some in the industry have said, "Currently, the market conditions have improved somewhat, especially since June, when some of the farms I work with downstream have shown increased demand."

Recently, Mr. Chen, who has been in the animal protection industry for many years, told Caixin News reporters, "I do GMP veterinary drugs, and compared to the first quarter and last year, the recent market conditions have started to improve to a certain extent, mainly starting from June. Some farms I work with downstream have shown increased demand."

Others in the animal medicine industry told Caixin News reporters, "The recent situation in animal medicine sales has improved somewhat, but it is not yet obvious. This is mainly because the industry is too competitive."

Have signs of a recovery in the animal protection industry appeared? A search of the National Veterinary Drug Basic Database by Caixin News reporters found that the number of domestically produced animal vaccines issued in the second quarter of 2024 was 4839, which exceeded the same period last year (4640) and showed a significant increase from the first quarter of this year (4565).

In addition, from the performance perspective of listed companies, the depression in the breeding end has put pressure on the performance of listed enterprises. However, starting in the second quarter of this year, the pressure seems to be gradually easing. For example, Pulike (603566.SH) recently released its 2024 interim results forecast, estimating that the net profit attributable to the mother would be 69 million to 81 million yuan in the first half of the year, down 30.03% to 40.40% year-on-year, with a forecasted net profit attributable to mothers in the second quarter of 41.69 million yuan to 53.69 million yuan, which is significantly narrower than the first quarter decline.

Caixin News reporters called the securities department of Pulike and were told by a staff member, "The improvement in performance is partly due to the fact that the breeding side has begun to turn losses into gains from May to June. This may have a certain benefit for (animal protection) sales."

Where do the signs of improvement in the animal protection industry come from?

Public information shows that the animal protection industry, commonly known as the animal medicine industry, is mainly composed of three subdivisional markets: veterinary biological products, veterinary chemical drugs, and Chinese veterinary drugs. The demand for the animal protection industry is mainly driven by the downstream breeding industry.

Industry experts said in an interview, "When the profit of the downstream breeding industry rises, the profit of the upstream animal protection enterprise will also show a certain upward trend. Once the breeding situation improves, the mindset of the breeding end will change, and they will be more willing to invest, which will immediately be reflected in the market."

Previously, Pulike had also stated in its 2023 annual report that as the breeding capacity of livestock and poultry is disposed of and the downstream breeding industry gradually recovers, it is expected to drive and lift the recovery and development of animal medicine manufacturers.

In fact, pig breeding is now entering a period of overall profitability, and the profits of egg and chicken breeding have also begun to show clear signs of an upswing.

From the half-yearly performance forecasts announced by many listed pig enterprises recently, Muyuan Foods (002714.SZ), New Hope Liuhe (000876.SZ), ST Tianbang (002124.SZ), and Beijing Dabeinong Technology Group (002385.SZ) have achieved overall profitability in the second quarter.

Aforementioned industry experts said, "Currently, the profitability of the breeding side is still good, and theoretically pig prices in the second half of the year are still considerable. According to historical situations, the animal protection sector is expected to be driven upward by the breeding industry and see signs of improvement, so it is normal to see signs of recovery now. But we still need to observe if the high breeding profits can be sustainable."

It should be noted that even if the animal protection industry rebounds, it may still fall short of expectations.

Caixin News reporters found in interviews that many insiders mentioned that: currently, some animal protection enterprise products have a problem with excessively lower prices. The aforementioned Pulike staff member also said, "If we have the same products and no differentiation, and not a significant competitive advantage, then when the other side launches a price war, it becomes a struggle for all of us."

In the secondary market, according to Choice's data monitoring, since the second quarter, the performance of animal husbandry enterprises has been disappointing. Among them, Pulike Biological Engineering, Inc. fell by 26.98%, China Animal Husbandry Industry by 26.13%, Wuhan Keqian Biology Co.,Ltd by 23.06%, and Wuhan Hvsen Biotechnology by 30.59%.

According to brokerage research reports, in the second half of 2023, the acceleration of sows' fecundity in the secondary market could lead to a reduction in the supply of pigs from May to the end of 2024, which may drive up pig prices. With the reversal of the pig cycle, it is expected that pig prices will continue to rise, which may drive up the performance of the animal health sector.