On December 11, the pig industry sector rose. By the close, the pig industry had risen 2.69%. In terms of individual stocks, Tianyu Biotech rose and stopped, superstars such as Agriculture and Animal Husbandry and Luoniushan all rose by more than 4%, while Guangming Meat, Yisheng Co., Ltd., Zhenghong Technology, Jinxinong, and Muyuan Co., Ltd. all rose more than 2%.

The Animal Husbandry ETF (516670) rose more than 2%.

Pig prices are on the rise as a whole

Since this year, pork prices have shown an overall upward trend. According to Wind data, pork prices rose strongly from May to early August. Pig prices rose from a high of 20.26 yuan/kg at the beginning of the year to 27.77 yuan/kg, the biggest increase of 37.07%.

There has been a slight correction in pork prices since late August. As of December 11, the average wholesale price of pork in China was 23.15 yuan/kg, down 16.64% from the high point during the year.

Despite the overall rise in pork prices, industry insiders believe that the pig industry's ability and desire to be able to breed sows may have declined drastically. According to Wind data, the number of breeding sows has continued to decline since 2023, from 43.9 million at the end of 2022 to a minimum of 39.86 million at the end of April 2024, a decrease of 9.2%.

Since May of this year, with the rebound in pork prices, there has been a slight increase in the number of sows that can be raised, but the rate of increase has been relatively slow. As of October, the number of breeding sows was 40.73 million, up 2.18% from a low point.

It is worth noting that against the backdrop of an overall increase in pig prices this year, pig feed prices have continued to decline. According to Wind data, as of November 27, the price of pig feed was 3.06 yuan/kg, with a cumulative decline of 8.11% during the year.

Shanxi Securities said that while pig prices have risen in various profit cycles since 2006, they have also been under pressure to increase costs for a long time. This round of rise in pig prices since 2024 has been accompanied by a marked decline in upstream raw material prices in rare places, thus helping the pig breeding industry to further expand profit margins.

“Cost reduction” became the winner and loser

From the breeding side, pig companies are generally cautious in expanding production capacity, focusing more on cost optimization and intelligent development. According to Shanxi Securities Research, the overall financial situation at the bottom end of this downward cycle since 2019 has been under the greatest pressure since 2006, and the industry urgently needs to repair the balance sheet through a profit cycle rather than continue to increase leverage and expand.

“Cost reduction” may be the winner or loser of this downward cycle. At present, many companies have achieved results in “cost reduction”.

Muyuan Co., Ltd. said during a research activity in November that the company's pig breeding cost was around 16 yuan/kg in June 2022, and the cost had dropped to 13.3 yuan/kg in October this year.

Wen's Co., Ltd. stated at the brokerage strategy meeting in November that the company's comprehensive cost of pig breeding was reduced to around 6.7 yuan/kg in October, and the preliminary plan is that the comprehensive cost target for pig breeding for the whole year of 2025 is less than 6.5 yuan/kg.

Superstar Agriculture and Animal Husbandry said in the investor relations activity record sheet released on November 22 that the company's total cost of commercial pigs in October remained within 7 yuan/kg, and the planned total cost target for commercial pigs in 2025 is 6.5 yuan/kg.

The profits of listed pig companies have improved markedly

Due to the dual effects of higher pork prices and lower costs, the profit situation of listed pig companies is rapidly improving.

According to Wind data, there are currently 34 listed companies belonging to the pig industry in the A-share market. Judging from the performance of the first three quarters, a total of 20 listed pig companies achieved net profit growth in the first three quarters (excluding those with negative net profit), accounting for 58.82%, compared to only 7 in the same period last year.

Specifically, the net profit of 19 listed pig companies doubled year-on-year in the first three quarters. Adisu achieved net profit of 1.003 billion yuan in the first three quarters, leading the year-on-year growth rate of 3016%. The net profit of Muyuan, Hefeng, Lihua, Shennong Group, and Luoniushan all surpassed 300% year-on-year growth.

Everbright Securities said that as the country starts to cool down, the recovery in peak season consumption and the rebound in pig prices are steadily realized. It is expected that both supply and demand will form before the end of the year, supporting the maintenance of high prices. Judging from the performance of pig companies in the third quarter, against the backdrop of high profits in the industry, the performance of companies was clearly divided. In particular, as the industry entered a continuous profit redemption period, the alpha advantage was further highlighted, and the focus was on recommending breeding enterprises with a high degree of cost reimbursement.

Agency: “High quality and good price” is the key

Regarding the future outlook for the pig industry, Shanxi Securities believes that the market's recent expectations for a sharp recovery in pig production capacity may be overly pessimistic. The continuation of the subsequent profit period of the pig breeding industry is expected to exceed market expectations. We recommend investment opportunities in pig breeding stocks such as Wen's shares, Shennong Group, superstar agriculture and animal husbandry, Tang Renshen, Dongrui shares, and New Hope.

Huaxin Co., Ltd. said that from an industry and cycle perspective, it is becoming more and more difficult to predict pig prices, yet differences in the operating efficiency of different enterprises are still very obvious, and investment should shift from “cyclical thinking” to “high quality and high price.” Corresponding to the stock price level, the pig sector currently receives less attention in the market, and sector valuations are still at the bottom, focusing on leading high-quality pig breeding companies.

According to the Galaxy Securities Research Report, losses in outsourced piglet breeding have increased. Based on the effect value of breeding sows and the MSY framework, the 2024 pig price operation judgment was basically verified. Regarding the trend of pig prices in 2025, the average price for the whole year was relatively stable. The difference is that excellent pig companies continue to optimize their complete costs, bringing breeding profits beyond expectations. In addition, the impact on pig prices in 2025 is also the impact of climate changes in the current winter on the epidemic, which requires continuous monitoring. It is recommended to focus on pig companies that are leading/improving in the cost control industry, relatively healthy in terms of capital, and reasonable valuations.

According to China Merchants Securities's opinion, pig prices are expected to be relatively stable in 2025, and the balance sheet continues to recover. Affected by the rise in pig prices, although cash flow on the industrial side has recovered to a certain extent, the industry's balance ratio is still at a historically high level due to rapid capital expenditure in the early stages. At the same time, based on cautious expectations of pig prices in the future, the overall recovery rate of sow production capacity is slow, corresponding to a limited increase in supply in 2025. Combined feed costs continue to decline. High-quality pig companies may still be able to maintain a certain level of profit in 2025, and their balance sheets may continue to recover.

This article is reprinted from “Wind”, Zhitong Finance Editor: Xu Wenqiang.