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旺季不旺,猪肉“难香”?

Is the peak season not prosperous, making Pork hard to sell?

Zhitong Finance ·  Jan 13 13:27

But in fact, this new wave of pig cycles is no longer playing cards according to common sense.

Recently, major pig companies have released performance forecasts for the full year of 2024, but the signal of “completely reversing losses” has not stirred up a “wave” of growth in the pork sector.

On January 8, Makiyuan Co., Ltd. (002714.SZ) announced its 2024 annual results forecast. It is expected to achieve net profit of 17 billion yuan to 18 billion yuan, turning a loss into a profit over the previous year. In addition, Wen's Co., Ltd. (300498.SZ) expects operating income of 2024 to exceed 100 billion yuan, and net profit to mother of 9 billion yuan to -9.5 billion yuan, a significant improvement from the loss of 6.39 billion yuan in the same period last year. ST Tianbang (002124.SZ), on the other hand, expects net profit to be 1.36 billion yuan to -1.56 billion yuan in 2024, which significantly turned a loss into a profit from a loss of 2.883 billion yuan in the same period last year.

However, the frequent signs that the industry is reversing losses have not stimulated pork concept stocks to strengthen sharply.

From January 9 to January 13, the pork sector of the Hong Kong stock market declined one after another, recording declines of 1.63% and 1.67% on January 9 and 13, respectively. Looking at the long-term timeline, since December 13, 2024, the sector has declined by more than 10%. During this period, Wanzhou International (00288) fell by more than 12%, and COFCO Jiajiakang (01610) fell by more than 13%.

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(Market source: Futu)

Generally speaking, pork stocks often start before pork prices. The current sluggish pork stock price reflects the market's “negative sentiment” about this sector to a certain extent. So why is the pork sector “not tasty anymore”, and will there still be investment opportunities in the future market?

Dividends have weakened, demand has peaked, and the industry has entered an “era of marginal profit”

Looking back at the 2024 pig price trend, we can see that the overall trend is “inverted V”.

Pig prices were low at the beginning of the year, then gradually rose, then fell again after reaching a high point in August. Specifically, pig prices reached a low of about 13.7 yuan/kg in January 2024, then prices began to rebound and rose to a high of 20.9 yuan/kg in mid-August due to factors such as reduced market supply, pressure from farmers, and secondary fattening. However, market supply recovered in September, and pig prices began to fall and continued until the end of the year, falling to around 15 yuan/kg at the end of December.

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As pig prices fluctuate up and down, the industry seems to have reached a consensus that industry demand has peaked and entered an era of marginal profit.

From the demand side, pig prices were low in 2014 and 2023, and breeding losses indicate that supply exceeded demand. Pork production in 2014 is close to pork production in 2023, indicating that domestic demand is already saturated at around 58 million tons, and pork consumption in China may have peaked in 2014.

Also, judging from the OECD's forecast, domestic pork consumption per capita is expected to peak in 2014. China's total population was generally on the rise before 2021, and the total population of China began to decline in 2022. The total consumption of pork is equal to the total population multiplied by the per capita consumption. The domestic population has already experienced negative growth, while the domestic per capita consumption of pork may have peaked, and the corresponding total consumption may have reached its peak. However, in the long run, the domestic population will gradually decline, and the weakening of total domestic demand for pork due to the decline in population will bring about long-term constraints.

This also means that for a long time to come, without the disruption of the new epidemic, along with large-scale increases and production capacity difficulties, supply and demand will become more relaxed, incremental games will become inventory games, and competition among large-scale enterprises will intensify. If there is no force majeure influence, the difficulty for enterprises to make profits will increase dramatically, and the industry will gradually shift from rapid development of high profits to an era of low profits or even marginal profits.

This trend can be seen in the latest results of relevant pig companies.

According to the Zhitong Finance App, among the three pig companies that turned losses into profits, Makiyuan Co., Ltd., Wen's shares, and ST Tianbang, “cost reduction and efficiency” contributed greatly. Among them, Muyuan Co., Ltd. stated that the reason for reversing the loss in 2024 was an increase in the number of pigs released during the reporting period, the average price of pig sales compared to the same period last year, and the year-on-year decrease in pig breeding costs. ST Tianbang, on the other hand, is inseparable from “selling capital back”. The company said that the main reasons for the improvement in performance include the investment income of 0.995 billion yuan from the sale of 32.91% of the shares in the participating company Shiji Biotech in the first quarter.

Also, according to relevant data, in 2024, listed pig companies achieved remarkable results in reducing costs. Breeding costs for Muyuan Co., Ltd., Shennong Group, Wen's shares, and Tiankang Biotech have dropped below 14 yuan/kg.

Based on the above, competition in the industry has intensified, and as we have entered an era of marginal profit, pig companies have become the main means of turning losses into profits by reducing costs and increasing efficiency. This is probably also the key reason why the pig sector has completely reversed losses but there has been no “rise”, and pig prices are “not strong during the peak season.”

“Up” or “down”, how should the latest pig cycle be interpreted?

As long as pigs have a growth cycle, they cannot avoid the price cycle.

In December 2024, which was just past, pig prices continued to be sluggish during the peak season for pickling, and the average monthly farming profit had dropped sharply by more than 100 yuan. For listed pig companies, how to hedge against the risk of fluctuations in pig prices and obtain stable breeding profits are unavoidable issues.

Generally speaking, the pig cycle mainly follows the following rules: insufficient supply of pork — rising pork prices — excessive increase in pig storage — oversupply of pork — falling pork prices — excessive reduction in pig stocks due to farmers' losses — insufficient pork supply... This cycle continues, and industry supply and pork prices change cyclically.

In the 2018-2022 cycle, a long downturn and a strong epidemic spawned a high boom, but then led to deep losses in 2023. We are now at the beginning of a new pig cycle. The breeding sow population has experienced continuous depletion. As of May 2024, the depth of removal was about 11%. This has supported the rapid rebound in pig prices since the second quarter of this year.

But in fact, this new wave of pig cycles is no longer playing cards according to common sense.

The fourth quarter of 2024 is the peak season for pork consumption in the middle of the year, and demand for pickled cured meat is strong. However, in the past two months, due to the high temperature of the weather, demand for pickled pork in most regions has not been effectively released, but supply has increased as scheduled. The imbalance in the speed of supply and demand led to another drop in pig prices in mid-late November. Afterwards, even if the weather cools down and demand for pickled pork was released, which led to an increase in pig prices, this was just a regular seasonal performance, and it was not enough to be seen as a major upward cycle.

Regarding this trend, it is widely believed in the industry that the pig industry will be in a marginal state where pig price fluctuations are not obvious for a long time, and the “no gambling cycle” has become an industry consensus. Among them, Donghai Futures pointed out, “In this development situation where production capacity is generally stable and characterized by seasonal adjustments, not only is the possibility of large cyclical fluctuations in pig prices decreasing in the future, but seasonal price fluctuations throughout the year may also become more and more smooth.”

In this context, reducing costs and increasing efficiency and improving quality to obtain new growth has become a “compulsory course” for listed pig companies to put on their agenda.

For example, the overseas market is currently viewed by many pig companies as a new growth curve. Since 1999, it has successively entered new hopes in 15 countries and regions, and the goal is to set up pig farms in Vietnam in recent years. In September 2024, Muyuan Co., Ltd. signed a strategic cooperation agreement with BAF Vietnam Agriculture Co., Ltd. and began exploring overseas development.

So, for investors, what are the investment opportunities in this industry?

Among them, Haitong Securities, as the Spring Festival approaches, supply and demand are strong, and the decline in weight indicates that the pressure on secondary education has also been released to some extent. However, considering the improvement in overall production efficiency in 24 years, the current basic supply is still sufficient, and pig prices may maintain a weak pattern in the short term. At the same time, from a long-term perspective, the expansion of the entire industry in previous years may have come to an end, and the industry has entered a new stage of development, and enterprises with an advantage in farming costs are expected to enjoy more dividends. It is recommended to focus on Muyuan Co., Ltd., Wen's shares, Huatong shares, Superstar Farming and Animal Husbandry, Shennong Group, Tiankang Biotech, etc.

In addition, Huaxin Securities pointed out that at present, Nengfeng production capacity is still on the rise, and the industry is still in a profitable period due to low breeding costs. It is expected that the production capacity of Nengfan will increase slightly in the future, and there will be a relative oversupply of pork in 2025. The agency predicts that in 2025, only cost-leading pig companies will have profit opportunities, and the rest of the industry's production capacity will enter a cyclical loss phase.

As can be seen from the above, powerful companies have already proposed their own ways to deal with this new cycle of not trading according to common sense. Similarly, investors should follow this change and pay attention to leading companies that have advantages in farming costs and obvious measures to improve quality and efficiency.

The translation is provided by third-party software.


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