CLSA July 31 (Reporter Liu Jian, Liu Yue) - Pork prices have once again entered a rising mode, breaking the CNY20/kg mark in many places. The profitability of the breeding end has been further enhanced. An executive of a breeding farm told reporters of CLSA, " Recently, one pig can earn around CNY500-600 when it is sold. According to recent prices, it can even earn a little over CNY600."

The CLSA reporter learned from its interview that the supply is relatively scarce compared with the same period in previous years, coupled with seasonal fluctuations, has pushed up pork prices. Overall breeding profitability in Q3 is expected to be significantly higher than in Q2. Zhu Zengyong, chief analyst of the pork industry chain monitoring and early warning under the Ministry of Agriculture and Rural Affairs, said in an interview with CLSA reporters," I personally think that there is not much room for further price increases after Q3, and prices may remain slightly higher than now in August, but the increase may be limited."

In addition, the announcement shows that the listed pig enterprises generally achieved a turnaround to profit in Q2, of which Muyuan Foods (002714.SZ) is expected to have profits of over CNY3 billion in Q2, New Hope Liuhe (000876.SZ) is expected to have profits of about CNY0.75 billion in Q2, and Wens Foodstuff Group (300498.SZ) is expected to have profits of over CNY2.4 billion in Q2. If pork prices continue to remain at current high levels in Q3, the performance of relevant pig companies may improve significantly compared to Q2.

Choice data shows that on July 30, the national average price of live pigs was CNY19.25/kg, up CNY0.08/kg from the 29th and up CNY1.62/kg from the same period last month. As of now, provinces such as Zhejiang, Guangdong, and Fujian have already broken the CNY20 mark.

Trend chart of pork prices - Source: Choice

Since entering the third quarter, pork prices have continued to hit a new high for the year. An executive of a certain breeding farm told CLSA reporters," The price has been slowly rising since mid-June when it fell for a few days. The current price here has already exceeded CNY19 per kilogram, which is the highest price this year."

Zhu Zengyong told CLSA reporters, "After the rising trend was established in mid-to-late May, overall, it has been a mild rise this time. First of all, in terms of the sow liquidation, the rate of liquidation accelerated in the second half of last year, especially in the fourth quarter, thereby driving a significant seasonal increase in pork prices in the third quarter of this year; secondly, in terms of the annual supply, generally, at the end of Q2 and the beginning of Q3, it is the low point of the year for the outflow of live pigs."

Public data shows that as of the end of Q2, the national sow inventory was 40.38 million, up 1.1% MoM but down 6.0% YoY. The live pig inventory was 415.33 million, up 1.7% MoM but down 4.6% YoY.

The surge in pork prices has resulted in a significant increase in breeding profitability. The executive of the aforementioned breeding farm revealed, "Since May, selling pigs has been quite lucrative. Previously, selling a pig could earn about CNY400. Now, one pig can earn CNY500-600, and based on current prices, it can even earn over CNY600."

Looking ahead, Zhu Zengyong believes that prices in August may remain slightly higher than current levels, but the increase may be limited. "I think that the profit-making point for this year is in Q3 and Q4, while H1 is in a slightly profitable state of balance of profit and loss."

The breeding end is also optimistic about the expectations for the second half of the year. The executive of the aforementioned breeding farm told CLSA reporters," I think pork prices will be relatively good in the second half of the year and may not be bad in the first half of next year either. This time, the overall rise in pork prices is still due to there being fewer pigs, and after experiencing losses for the past few years, none of us are willing to expand production indiscriminately anymore. "

Previously, Muyuan Foods also stated in a conference call," The company is more optimistic about the pig market in the second half of this year."