Intelligent Finance News APP learned that Tianfeng Securities released a research report stating that the recent accelerated manifestation of the supply gap period of this round of cycles and the upward trend of pig prices have not ended. The high business cycle is highly likely to exceed expectations, emphasize the difference in expectations and space from a stock selection perspective. Currently, it is recommended to use funds as the standard, with a cost advantage, high output, and relatively safe valuation as the criteria, allocate sector β, pay attention to core assets, and recommend Wens Foodstuff Group (300498.SZ) for large pigs, followed by New Hope Liuhe (000876.SZ); for small pigs, focus on Huatong Meat Products (002840.SZ) and others.

Tianfeng Securities' main points are as follows:

Why have stocks fallen recently? The core issue lies in the market's concern about the economic cycle's prospects, fearing a repeat of a brief boom in 2022. Therefore, under the current situation of spot pig prices rising beyond expectations, concerns about the unsustainability of rising pig prices have emerged(e.g. high output weight, severe secondary feed-fattening, and previous volume reduction in group farms).

How do you view the recent pig price and secondary feed-fattening? Supply reduction may be the main cause of the recent increase in pig prices. As of June 12th, the national average price of live pigs was 19 yuan/kg, which is currently in the off-season of seasonal demand (no significant changes in demand recently), and the northern pig prices have been more dominant (the north-south price difference corresponds to the excess loss brought by the northern epidemic in 2023Q4, and the same applies to the 22Q2 market).

The proportion of secondary feed-fattening is low. According to data from YONGYI Consulting, the secondary feed-fattening has risen in a stepped manner this year, with the high point in the previous stage being from mid-March to mid-April. Considering that there has been no significant premium for fattening pigs since April, it is basically completed. At present, the proportion of secondary feed-fattening in the industry has not exceeded the peak in October 23 and is mainly rolling out, making it difficult to form a supply backlog (the slight increase in sales of third-party institutions in May also reflects that the behavior of secondary feed-fattening is not severe).

How do you view the current average weight? The decline in costs has driven up the centralization of the average weight. Feed costs account for about 60-70% of the breeding costs. However, corn and soybean meal prices have continued to fall since 23Q3, and the reduction in feed costs has also driven the increase in the industry's overall output weight (the optimal output weight for fattening is higher than in the previous period). At present, the industry is in a normal output rhythm and there is no obvious deliberate suppression of output or demand for weight reduction.

Large pig output accounts for a low proportion, and it may be difficult to drag down pig prices. Since March, the premium of fattened pigs over standard pigs has continued to decline, driving the output of large pigs in the industry. As of this week, the output weight of YONGYI Consulting's breeding end was 126kg. At present, the proportion of large pigs weighing 150kg is at a low point in recent years, and the inventory of large pigs is currently in a normal state.

Risks of breeding diseases, price fluctuations, systematic market risks, and slower-than-expected recovery in downstream consumption.

The decrease in cost drives the center of gravity of the average weight to rise. Feed cost accounts for about 60-70% of the breeding cost, while the prices of corn and soybean meal have continued to fall since Q3 23, and the decrease in feed cost has also driven the increase in the overall average weight of the industry (the optimal average weight of fattening has moved to the later period), and the industry is currently in a normal slaughtering rhythm with no obvious deliberate crowding and no demand for decreasing average weight.

Low proportion of large pig outflow may not drag down the pig price. Since March, the premium of fat pig to standard pig has been decreasing, driving the outflow of large pigs in the industry. This week, Yongyi Consulting's breeding end outflow weight was 126kg. Currently, the proportion of 150kg large pigs outflow is at a low level in recent years, and the inventory of large pigs is in a normal state at present.

Risk warning:

Breeding disease risks; price fluctuation risks; systematic market risks; slower-than-expected recovery in downstream consumption.