According to the Intelligent Financial APP, Huachuang Securities released a research report stating that the price of parent generation chicken seedlings continues to be high. In the case of weak profitability in the downstream industry, the upstream parent generation link can still continue to raise prices, further highlighting the supply-demand contradiction in the upstream link. Short-term adjustment behaviors such as molting and extending the slaughter cycle are more difficult to fill the gap in imported breeds. In July, the overall prices of the industry chain rose, with conflicts in the upstream being transmitted downstream, and the industry chain prices are expected to turn upwards. From a long-term perspective, the long-term growth potential of the chicken industry has already been evident; on the other hand, compared to the previous cycle, leading companies have significantly expanded their scale. The profit realization ability of this cycle is expected to achieve a substantial increase compared to the previous cycle.

Brazil suspends exports due to the Newcastle disease outbreak, leading to a rise in chicken prices in July.

Due to the Newcastle disease outbreak in Brazil and the subsequent suspension of exports, slaughter inventory has decreased, resulting in a month-on-month increase in chicken products in July. As for chicken seedlings, based on data from listed companies, the price of commercial parent generation chicken seedlings is below the breakeven point, but stocking has increased after the hot summer days, leading to a price rebound. In terms of slaughter, the price of live chickens is still relatively weak year-on-year, at a four-year low. The Newcastle disease outbreak in Brazil has affected exports, but domestic market prices have slightly rebounded.

The industry space continues to expand. In terms of chicken seedlings, in the 27-30th week of 2024, the sales volume of commercial parent generation chicken seedlings in the sample industry association was 0.365 billion birds, with a cumulative sales of 2.604 billion birds from weeks 1-30, a year-on-year increase of +1%. Among listed companies, Shandong Yisheng Livestock & Poultry Breeding saw a year-on-year decline in July sales, but a slight increase month-on-month. It is expected to maintain a sales volume of about 0.6 billion birds of commercial parent generation chicken seedlings in 2024. In terms of meat sales, leading companies are actively expanding downstream, with rapid growth in processed products and optimized product structure, further weakening the cyclical impact. Once the Xiantan Stock Farm project of Shandong Xiantan is fully completed and operational in 2024, the slaughter volume of broiler chickens will reach 0.25-0.27 billion, meat processing capacity will reach 0.7 million tons, doubling the company's production capacity.

Capacity: Overseas breeding remains limited, with a decrease in parent generation inventory in production. In July, the average inventory of grandparent broiler breeders was 1.3 million sets, up +16.6% year-on-year and +0.9% month-on-month. Third-party data (Steel Union) shows an industry updating volume of 0.087 million sets in July; the parent generation inventory in production is 21.19 million sets, down -4.3% year-on-year and -0.8% month-on-month; the price of parent generation chicken seedlings in July was 47.85 yuan per set, with the latest quote in the 31st week of 2024 at 54.37 yuan per set.

Overseas avian flu situation: The avian flu epidemic continues in the USA, and Brazil reports outbreaks of Newcastle disease. The largest chicken meat exporting country, Brazil, reported a Newcastle disease outbreak in July. The outbreak is still ongoing in certain states, leading to a suspension of poultry product exports to China. As of August 17, 3 cases of poultry disease and 163 cases of wild bird avian flu have been reported. Continuous avian flu outbreaks in the world's largest chicken meat exporting country will significantly impact global chicken meat trade. In July, the USA reported 6 cases of avian flu outbreaks in commercial farms, totaling 56 cases this year. Concurrently, the USA has reported avian flu outbreaks in 191 dairy farms in 13 states, increasing the risk of cross-species transmission and possibly escalating control difficulties. As of August 16, in the past 30 days, the USA has had 1 case of avian flu in commercial farms and 5 cases in domestic farms, with over 0.3 million poultry culled. Currently, there are reports of 508 cases of avian flu outbreaks in commercial farms, affecting over 0.1 billion poultry. In the short term, subsequent actions may still maintain a state of constrained supply, with limited imports and breeding.

Investment recommendation: From a long-term perspective, broilers, as the animal protein with the lowest feed-to-meat ratio, will further demonstrate their cost-effectiveness and economic advantages. The long-term growth potential of the industry has already been highlighted. On the other hand, compared to the previous cycle, leading companies have significantly expanded their scale, and the profit realization ability in this cycle is expected to achieve substantial growth. The profitability of the industry chain is concentrated in the upstream breeding segment, and superior breeding companies may achieve excess returns.

Currently, the valuation of the sector has reached a low level after the correction. It is expected that the long-term logic of restricted overseas introduction will continue to be validated. In the background of limited import introduction, excellent breeding companies will continue to maintain advantages in selling price and market average price. We recommend focusing on shandong yisheng livestock & poultry breeding, which has a sustained growth potential and is expected to obtain cyclical profits and barrier profits, as well as undervalued leading white feather broiler company wellhope foods. It is also recommended to pay attention to fujian sunner development, shandong xiantan, shandong minhe animal husbandry and other companies.

Zhongtong Finance & Economics APP has learned that Huachuang Securities has released a research report that believes the chicken cycle is coming. From a long-term perspective, the cost-effectiveness and economic advantages of white chickens as the animal protein with the lowest meat-feed ratio will further be reflected, and the industry's long-term growth is already evident. On the other hand, the scale of leading enterprises has expanded significantly compared to the last cycle, and the profit realization ability of this cycle is expected to achieve substantial growth compared to the last cycle. The industry chain profit is concentrated in the upstream breeding link, and advantaged breeding enterprises may obtain excess returns. According to the Association's monthly report, from January to April, only 179,900 imported grandparents seeds (accounting for 41%) were updated, and the import ratio continued to be below 50%. In the downstream industry with weak profitability, the upstream parental link can still maintain a continuous rise in prices. This further highlights the supply and demand contradiction in the upstream link, and short-term regulation behaviors such as changing feathers and extended elimination are difficult to make up for the shortfall in imported varieties. In May, the overall price trend of the industry chain is improving, and along with the transmission of upstream contradictions to the downstream, the industry chain prices are expected to continue to rise. White chicken prices may continue to improve, and corporate profits are expected to rebound. With terminal inventory at a low level and stocking up, the white chicken product industry rebounded month-on-month in April. As for chicken seedlings, according to the data of listed companies, the price of commodity representative chicken seedlings maintain profitability, but weak compared to the same period. In terms of slaughter, the price of broilers continued to decline year-on-year, but there was a slight improvement month-on-month. The industry space continues to expand. As for chicken seedlings, the industry's commodity representative chicken seedlings sales volume for the 14th-17th weeks of 2024 was 359 million birds, a YoY increase of 6%, and cumulative sales of 1.405 billion birds from the 1st to the 17th week, a YoY increase of 6%. Among listed companies, Yisheng's sales volume in April showed a YoY decline but a slight increase MoM, and it is expected to maintain a sales scale of around 600 million birds of commodity representative chicken seedlings in 2024. As for meat sales, head enterprises are actively extending downstream and expanding deep-processed products with high-speed growth, and the product structure has been optimized, further weakening the cyclical impact. After the Zoucheng project of Xiantan shares was completed and put into operation in 2024, the volume of chicken slaughter would reach 250-270 million and the capacity of meat processing would reach 700,000. The company's production capacity will be doubled. Capacity: Overseas import volume is still restricted, and there is hope that in-production parental stocks will continue to decline. In April, the average stock of grandparents' commercial chicken was 1.18 million sets, an increase of 6.6% YoY and 1.8% MoM. Third-party data (Steelhome) showed that the industry's updated quantity was 151,000 sets in April. The stock of parents was 21.95 million, a decrease of 2.5% YoY and 0.6% MoM. In April, the price of parent chicken seedlings was 35.29 yuan/set. The latest quotation data for the 18th week of 2024 was 38.68 yuan/set, which rose for three consecutive weeks. Overseas avian influenza: The US avian influenza continues, and importation is still restricted. The commercial chicken farm avian influenza in the United States has accumulated at 2 cases in May, and has reported avian influenza outbreaks in 51 dairy farms in 9 states, increasing the risk of interspecies transmission, making the prevention and control more difficult. Brazil, the largest chicken exporter, has reported 3 cases of avian influenza in poultry and 161 cases in wild birds as of May 17. If a poultry epidemic occurs in the world's largest chicken exporter, it will have a significant impact on global poultry trade.The latest 30 days as of May 20, there have been 4 commercial chicken farm and 7 family breeding HPAI, and more than 1 million poultry have been culled. In the short term, the follow-up may continue to maintain the state of one seed supply zone, and importation may continue to be restricted. We expect the chicken cycle to come. From a long-term perspective, the cost-effectiveness and economic advantages of white chickens as the animal protein with the lowest meat-feed ratio will further be reflected, and the industry's long-term growth is already evident. On the other hand, the scale of leading enterprises has expanded significantly compared to the last cycle, and the profit realization ability of this cycle is expected to achieve substantial growth compared to the last cycle. The industry chain profit is concentrated in the upstream breeding link, and advantaged breeding enterprises may obtain excess returns. Currently, the sector's valuation is at a low level after adjustment. It is expected that the long logic of restricted overseas import will continuously be verified, and the sales price of excellent breeding enterprises will continue to maintain their advantages over market prices under the background of restricted importation. Yisheng Livestock & Poultry Breeding, which has continued to expand its scale and is expected to gain cyclical and barrier profits, is heavily recommended, and the undervalued white chicken leader, Wellhope Foods, should also be noted. It is recommended to pay attention to Sunner Development, Xiantan Shares, Minhe Shares, etc.