Although the current weak demand limits the extent of the pig price increases, the reduced supply will support the pig price, and the relatively tight supply pattern may persist for a long time. If demand improves slightly in the second half of the year, the stimulating effect on price will be greater than before.
Zhongyou Securities released a research report stating that under the influence of the reduction in the supply of pigs in June, pig prices rose sharply, while breeding entities were cautious in their expectations and seized the opportunity to sell off, with a slight fluctuation in weight. Although the current weak demand limits the extent of the pig price increases, the reduced supply will support the pig price, and the relatively tight supply pattern may persist for a long time. If demand improves slightly in the second half of the year, the stimulating effect on price will be greater than before. It is expected that it will be difficult for pig prices to fall and easy to rise in the second half of the year, and the duration of industry profitability may exceed market expectations. It is now entering the period of mid-year performance disclosure, from the performance forecasts that have been announced so far, the industry's profits in the second quarter have clearly improved. At the same time, the degree of cost reduction and profit level of each enterprise is more clear and clear. It is recommended to prioritize targets with prominent cost advantages and consider growth potential.
The main opinions of Zhongyou Securities are as follows:
Summary of the June sales: price rises and quantity decreases, with significant profits.
Under the influence of the reduction in the supply of pigs in June, pig prices rose sharply, while breeding entities were cautious in their expectations and seized the opportunity to sell off, with a slight fluctuation in weight.
1) Quantity: Continued decline month-on-month. In June, the 17 listed pig companies jointly released 11.581 million live pigs, a significant decline of 10.4% month-on-month and 4.7% year-on-year. From January to June, the 17 listed companies accumulated 74.396 million live pigs, an accumulated year-on-year increase of 2.6%. Although pig prices rose significantly in June, the number of pigs slaughtered continued to decline, which was related to the tight supply of pig sources and the cautious market expectations, in addition to the fact that there was one less natural day.
2) Price: Significant rise. The average price of the 14 listed companies in June was 18.20 yuan/kg, a month-on-month increase of 15.67% and a year-on-year increase of 26.60%. In June, the price of pigs fluctuated narrowly at a high level. In the early part of the month, the pig sources were scarce in many areas of the north, and the addition of secondary breeding groups resulted in a significant increase in pig prices. In the middle of the month, the breeding farms actively sold pigs, coupled with the impact of high temperatures on consumption, and pig prices adjusted slightly. At the end of the month, secondary breeding groups once again entered the market, and pig prices began a new round of rebound.
3) Weight: Slightly fluctuating. The average weight of live pigs sold by the 10 listed companies in June was 115.95 kg/head, down 2.61% month-on-month. Although the pig prices continued to rise and the industry was profitable overall, the average weight of live pigs sold by listed companies fluctuated only slightly, mainly because there were fewer pressurized stocks and secondary breeding, and the listing companies sold pigs in line with the trend. Another factor is that the price of piglets is at a high level, and some companies may increase the number of piglets sold.
Pig prices are easy to rise and difficult to fall, and the cycle is strong.
Zhongyou Securities stated that in this round of elimination cycle, the maximum cumulative elimination rate of production capacity was 9.2%, and the lowest point of production capacity in April 2024 was lower than the previous cycle, indicating that the elimination rate of production capacity was quite profound. Although the pig price rebounded in May 2024, the growth of sow stock was slow under the influence of factors such as financial pressure and cautious expectations, and the production capacity remained low for a long time. Although the current weak demand limits the extent of the pig price increases, the reduced supply will support the pig price, and the relatively tight supply pattern may persist for a long time. If demand improves slightly in the second half of the year, the stimulating effect on price will be greater than before. It is expected that it will be difficult for pig prices to fall and easy to rise in the second half of the year, and the duration of industry profitability may exceed market expectations.
Investment advice: Focus on mid-term performance.
Enter the mid-term report season and focus on the realization of performance. It is now entering the period of mid-year performance disclosure, from the performance forecasts that have been announced so far, the industry's profits in the second quarter have clearly improved. At the same time, the degree of cost reduction and profit level of each enterprise is more clear and clear. It is recommended to prioritize targets with prominent cost advantages and consider growth potential. 1) The leader enterprises have high certainty and relatively clear cost advantages. It is recommended to pay attention to Muyuan Foods (002714.SZ) and Wens Foodstuff Group (300498.SZ). 2) Small and medium-sized enterprises have faster growth in sales and greater potential for cost reduction. It is recommended to pay attention to Leshan Giantstar Farming&Husbandry Corporation (603477.SH), Zhejiang Huatong Meat Products (002840.SZ), Tecon Biology Co. Ltd (002100.SZ), and Tangrenshen Group (002567.SZ).
Risk Warning: Risk of animal epidemic or volatile raw material prices.