According to the jrj.com.cn app, after entering the traditional peak season of consumption in the fourth quarter, the price of pork has continuously dropped for over two months during the traditional peak period, with a decrease of over 20%. As of October 19, the national pig price was 17.28 yuan/kg, a week-on-week decrease of 3.9%. The price of pork has been falling for two months since hitting a yearly high of 21 yuan/kg on August 15, with a total decline of over 20%. The decline in pig prices is due to the increase in piglet production, as well as a concentrated increase in slaughter after secondary fattening, which together form a downward pressure. On the other hand, the upward cycle driven by the liquidation of sows failed to withstand the downward pressure in the third quarter. china securities co.,ltd. pointed out that the pig prices fluctuated weakly during the National Day period in the previous period. Looking ahead, with the cooling weather, the expansion of the standard difference will stimulate the entry of secondary fattening, and with group pig enterprises aiming to reduce costs, there may also be certain restrained behaviors aimed at increasing weight (average weight at the time of slaughter in September has significantly increased). Under the combined influence, the shift in supply may drive short-term pig price increases, but may have a suppressive effect on subsequent peak season pork prices.

The continuous decline in the price of pork during the upward cycle is directly related to the realization of piglet production capacity. According to statistics from Zhuochuang Information and Yongyi Consulting on the number of piglets and the corresponding estimated pig slaughter guidance, the supply low point is in June to August of this year.

Weixing, a futures analyst at China Securities Co., Ltd., believes that the trend of slaughter volume recovery after August is more clear. Institutions' statistics on slaughter plans can verify this trend, with the remaining time of the year facing capacity recovery pressure once again.

In addition, the 'second fattening' that has become an important part of the pig farming industry has also become a key factor in the fluctuation of pig prices.

Wind Information data shows that from the start of the upward trend on May 15th to within one month by June 15th, pig prices rose from 15.27 yuan/kg to 18.72 yuan/kg, then rose to a phase high of 21.06 yuan/kg on August 15th.

In March, May, and July of this year, a large number of 'second fattening' entries were made. Yongyi Consultancy and China Securities Co., Ltd.'s futures calculations show that the amount of 'second fattening' accounts for about 6% of actual sales. When 'second fattening' sources pigs from the market, it creates a supply gap, which will then impact the market demand two months later with an approximate 40% weight gain.

In March, May, and July, the second breeding pig sources roughly correspond to the "value-added supply" in May, July, and September. Data shows that during May and July, the second breeding groups simultaneously purchased pig sources and put out "value-added supply," while in September, only put out, and some second breeders started purchasing in early October.

Under the catalysis of premium for fat pigs, some investors maintained certain entry positions in the early stage of last week, causing a slight upward trend in pork prices; After the increase in pork prices, investors' enthusiasm weakened, leading to a decline in pork prices in the later stage of the week. On October 20, the pork price was 17.22 yuan/kg, a weekly decrease of -0.93 yuan/kg. The sales proportion of Muyuan Foods, the group enterprise, was quite significant from October 1 to 10, accounting for 6.09%, an increase of +3.69% compared to September 21-30. However, investors were cautious due to the recent weak market situation, with many taking on a wait-and-see attitude and a decrease in restocking sentiment.

After the end of the National Day holiday, downstream demand was relatively weak, and the volume of animal slaughtering companies fluctuated slightly. On October 18, the slaughtering volume was 0.1435 million heads, a weekly decrease of -0.24%. Frozen product digestion was slow, with a national frozen product storage rate of 16.05% on October 17, a weekly decrease of -0.03%.

In the context of the widening price difference between fat and standard pigs, the industry faced certain pressure to increase weight through crowding behavior. In the previous week, the average weight of industry-slaughtered pigs was 126.34 kg, an increase of 0.47 kg compared to the previous week. Among them, the average weight of the group increased by 0.29 kg, and that of individual households increased by 1.1 kg. After the release of the selling pressure from large pigs in the previous period, the market saw a decrease in the inventory of large pigs, leading to a continued strengthening of the price difference between fat and standard pigs. From October 11 to 17, the price difference between 175kg and 200kg pigs and standard pigs was 0.56/0.95 yuan/jin, a weekly increase of +0.11/+0.15 yuan/jin. The proportion of slaughter-weight pigs weighing over 150kg from October 11 to 17 was 5.70%, a weekly increase of +0.05%.

Looking ahead, Huafu Securities believes that as the national temperature decreases, pork demand will gradually improve. With limited supply increases and cautious investor operations, pork prices are expected to rebound during the peak season at the end of the year. The profitability of pork enterprises is expected to continue to be realized. Currently, the industry's capacity recovery is slow, due to the reduction in profits at sow farms after piglet prices fell, downward adjustments in pork price expectations, and high industry debt levels suppressing capacity supplements. This round of the business cycle is expected to extend the prosperity period, with low-cost leading pork enterprises expected to achieve excess profits.

It is worth noting that in the third quarter of 2024, pork prices soared to over 20 yuan/kg, entering a period of high profitability for the pig farming industry. The average pork price in 2024 Q3 was 19.42 yuan/kg, compared to 16.39 yuan/kg in 2024 Q2 and 15.97 yuan/kg in 2023 Q3. The average pork price in 2024 Q3 increased by 18.5% and 21.6% compared to the previous quarter and the same period last year, respectively. The average profit from self-bred pig farming in 2024 Q3 was 500 yuan/head, compared to 109 yuan/head in 2024 Q2 and -108 yuan/head in 2023 Q3. The average profit margin for self-bred pig farming in 2024 Q3 increased by 357% and turned losses into gains compared to the previous quarter and the same period last year, respectively. With the significant increase in industry profits, it is expected that high-quality listed pig farming companies will achieve considerable growth in the third quarter.

Specifically, Wens Foodstuff Group announced that in the first three quarters, the company achieved revenue of 75.384 billion yuan, a year-on-year increase of 16.53%. The net profit attributable to shareholders of the listed company was 6.408 billion yuan, a year-on-year increase of 241.47%. The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 6.46 billion yuan, a year-on-year increase of 233.30%.

Muyuan Foods is expected to achieve a net profit attributable to shareholders of the listed company of 10 billion yuan to -11 billion yuan in the first three quarters, turning losses into gains year-on-year. The operating performance for the first three quarters saw a turnaround from losses to profits, mainly due to the increase in the average weight of slaughtered pigs and the average selling price of pigs compared to the same period last year, as well as the decrease in pig farming costs compared to the same period last year.

Changjiang Securities pointed out that due to factors such as bacon, stocking up for the Spring Festival, the fourth quarter's demand increase compared to the third quarter is relatively rigid, and the high level of profitability of the hog farming industry in 2024 Q4 is worth looking forward to. In addition, due to the weak expected pig price leading to slow industry capacity replenishment and even decline, with the background of continuous tight supply, the industry's high profitability level may continue into 2025. The bank believes that the high performance elasticity of farming stocks and the long-term profitability outlook are worth noting, showing a bullish outlook for the hog farming sector.

Related concept stocks:

COFCO Joycome (01610): In September, the number of hogs slaughtered was 0.305 million. The average selling price of commodity large pigs was 19.16 yuan/kg. Sales volume of fresh pork was 0.0197 million tons, with brand revenue accounting for 33.59% in the fresh pork business. According to CICC's calculation, the company's 1H24 full cost is about 16.2-16.5 yuan/kg; the bank's judgment is that the company may benefit from improved management and downward raw material costs recently, showing a further downward trend in full costs. On the other hand, the company focuses on improving intelligence, breeding, and epidemic prevention levels, and the enhancement of refined management capabilities may benefit long-term cost reductions.

Dekon Agr (02419): In September, hog sales volume was 0.7307 million, sales revenue was 1.762 billion yuan, and the average selling price of commodity pigs was 19.13 yuan/kg. From January to September, hog sales volume was 6.1627 million, sales revenue was 12.955 billion yuan. CICC pointed out that considering the company's cost improvement and the increase in pig price prosperity, it raised the profit forecast for 2024 by 23% to 3.2 billion yuan, basically maintaining the profit forecast for 2025. The bank believes that the company's advantages of low cost, light assets, and high elasticity are being strengthened. If the company is included in the Hong Kong Stock Connect on September 9, liquidity improvement may drive valuation repair.

WH Group (00288): Macquarie forecasts a strong performance for WH Group in the third quarter, expecting a 44% year-on-year increase in quarterly operating profit, benefiting from the continuous recovery of the USA business and improvement in mainland operations. The bank points out that the company's packaging and processing business in the USA remains a highlight, with expected quarter profit increasing by 30% year-on-year, benefiting from favorable costs and improved efficiency. Lower feed costs and resilient meat prices are expected to help turnaround the upstream business in the USA compared to last year's loss of $56 million in the same quarter. The bank predicts a 1.97-fold year-on-year increase in the third quarter operating profit from the USA business, serving as the main driver for performance.