The image is AI-generated
Finally, when the spring flowers bloomed, the cold air of the pig industry began to be dispersed.
Public data shows that since March 2024, the national pig price has risen for three consecutive weeks, and the national average pig price in the fourth week of March was 15.31 yuan/kg, up 1.8% month-on-month and 0.9% year-on-year.
With the recovery of pig prices, the company's sales performance has also delivered a gratifying report card. As of April 10, the sales performance of 16 listed pig enterprises in March was released, and nearly half of the pig enterprises slaughtered increased year-on-year, and the total sales volume in the first quarter has exceeded 35.8 million. According to the data of the "Agricultural Finance Think Tank", 16 listed pig companies sold 12.2949 million live pigs in March, up 16.68% from the previous month.
With the recovery of pig prices, the average sales price of pig enterprises has also increased month-on-month. According to incomplete statistics, the average sales price of live pigs of 13 pig enterprises, including Wen's shares, Muyuan shares, New Hope, and Jinxinong, has risen month-on-month.
For example, the average sales price of Jingji Zhinong and Shennong Group at the beginning of the year was between 13.04 yuan/kg and 13.5 yuan/kg, and in March, they rose 9.82% and 7.44% month-on-month respectively, entering the level of 14 yuan/kg. The sales prices of Jinxinong, Dabeinong, and Tianbang Food also increased by more than 4% month-on-month in March. The average sales price of Lihua shares and Dongrui shares has exceeded 15 yuan/kg and 16 yuan/kg respectively.
More than 10 pig enterprises increased their sales revenue in March. Among them, Lihua shares and Keming Food, whose sales volume increased by more than 100% month-on-month, also increased their revenue by 131.67% and 150.39% respectively. In addition, the sales revenue of Dabeinong, Tiankang Biology and Jinxinong also increased by more than 50%-77% with sales.
With the recovery of pig prices, there are more and more voices of the reversal of the pig cycle, and even superstar agriculture and animal husbandry said at the recent performance briefing that "the market will have a reversal trend in 2024".
Reflected in the secondary market, the share price of pork stocks moves ahead of the price of pigs. The lowest point of the Wande Pig Industry Index (884251.WI) appeared in early February this year, and since then it has fluctuated and risen, closing up more than 10% as of April 10. In terms of individual stocks, since February, the share prices of Muyuan shares and Huatong shares have risen by more than 20%, and Aonong shares and Dongrui shares have also risen by more than 15%.
Source: Wind data
Is the pig cycle about to reverse? Is this a good time to allocate pork stocks?
Pig prices have not risen in the short term, and the long-term price center of gravity is expected to rise
This round of pig price rise is mainly caused by the tight supply side. Shao Guanguan, an analyst of the pig industry of Zhuochuang Information, told Titanium Media App that the long loss cycle of the breeding end in 2023, as well as the continuous reduction of pig production capacity in the second half of the year, led to a stage gap in the supply of live pigs in the first quarter of 2024. Factors such as the rise in breeding units are particularly strong, the reluctance of retail investors to sell, the superposition of the market's secondary fattening behavior to intercept part of the slaughterable pig source, and the increase in the difficulty of downstream slaughtering end purchases, etc., helped the price of live pigs in the first quarter to gradually improve.
The second fattening behavior is stimulated by the north-south fertilizer price difference (the difference between the price of fat pigs and pigs), Wu Linlin, a pig analyst at the Shanghai Ganglian Agricultural Products Division, told Titanium Media App that the national fertilizer price difference in the first quarter of this year was 0.47 yuan / kg, compared with the same period last year per kilogram widened by 0.36 yuan, so it stimulated the entry of secondary fattening and the weight gain of retail investors.
However, in the short term, the factors that stimulated higher pig prices do not seem to be sustainable.
According to Mysteel agricultural products, as of April 10, the price difference of fertilizer was 0.14 yuan/jin, 0.1 yuan/jin narrower than the previous day, and 0.21 yuan/jin lower than the recent high. Such a change may promote the breeding end of the pig to actively slaughter, but the downstream for the early fattening pig undertaking is not ideal. On the one hand, the weather is warmer, and after the Qingming Festival, it is difficult to ship pork consumption at the slaughtering end, and although the frozen meat inventory has decreased, it is still at a relatively high level.
On the other hand, the high price of fat pigs is a bit "wishful thinking", and the slaughtering end, which continues to lose money, does not want to buy it. According to Mysteel sample monitoring, the current sample slaughtering enterprises slaughtering gross profit is about 50 yuan / head, compared with the average loss of 30-40 yuan in the fourth quarter of last year. Some practitioners said that in order to reduce losses, many slaughterhouses had to stop work before and after the Qingming Festival, and some slaughterhouses even stopped production for up to 10 days, so the slaughtering end has a strong price reduction mentality.
Image source: Dadi Futures
At the same time, the overall pig industry is still in a situation of oversupply, according to the Ministry of Agriculture and Rural Affairs released data showing that the normal number of sows can be 39 million, as of the end of February, the Ministry of Agriculture and Rural Affairs announced that the number of sows can be reproduced reached 40.42 million, above the normal holdings.
Not only that, the release of the second fattening in the early stage may bring a wave of slaughter pressure, resulting in a downward trend in pig prices. Shao believes that considering the limited support of the current demand, and the source of secondary fattening pigs in the early stage may be released in May, there may be a low point in pig prices in May.
However, in the long run, the industry believes that the price center of gravity of pork is expected to rise, and the supply and demand situation may improve in the second half of the year with the promotion of capacity reduction.
Huatai Securities believes that the core of production capacity is still financial pressure, and the financial pressure may continue to intensify under the long-term loss, and the breeding end will increase the number of sows that can reproduce to game the future pig price or will become more and more cautious. It is expected that under the guidance of policies and financial pressure, the reduction of production capacity will still be the main theme in the next 1~2 quarters. At the same time, the 23H2 fertile sows have been accelerated, the increase in the production efficiency of fertile sows may be significantly narrowed, the supply of 24H2 pigs has contracted or a high probability event, and the price of 24H2 pigs may be worth looking forward to.
Shao also said that according to the monitoring sample data and cost cycle inference of Zhuochuang Information, the supply of live pigs in the second half of the year may gradually decrease, and it is expected that the imbalance between supply and demand in the second half of the year may be alleviated to a certain extent, and the price high may appear in September.
And from the demand side, in the second half of the year, affected by the recovery of demand, the situation of white strips and slaughtering will improve, but Wu Linlin said that at the same time, with the gradual recovery of production capacity, supply or increment, so although the general trend is bullish, it will not be too high compared with the average level in the first half of the year.
Entering the right side of the cycle, can pork stocks be allocated?
Based on the judgment of the trend of pig prices, some research reports pointed out that pork stocks are currently in the best allocation time. Huatai Securities said that considering that the stock price inflection point in the previous pig cycle was usually ahead of the pig price, it is recommended to actively lay out the breeding sector.
Haitong Securities Research Report pointed out that according to historical experience, pig stocks perform better in two stages, one is in the later stage of the pig price decline process, this stage often corresponds to the fastest stage of production capacity, and the other is in the first half of the pig price rise. Haitong Securities Research Report believes that in the first half of the year, pig prices may still be dominated by bottom shocks, and pig prices will gradually strengthen in the second half of the year, which means that the current time point is still in the best allocation time.
The trend of pig prices is directly related to the operation of enterprises, with the recovery of pig prices and the decline in feed prices to bring about a decrease in costs, the profitability of pig enterprises has improved.
According to the research of Zhuochuang Information, in 2023, the breeding cost of most breeding ends will be controlled at 7.5-8.0 yuan/catty, but with the decline in feed costs, the recent breeding costs are around 7.5-7.8 yuan/catty. Specific to the average profit, on March 15, the profit of self-breeding and self-breeding turned into a profit, as of April 10, the profit of self-breeding and self-breeding was 114.78 yuan/head, up 129.39 yuan/head month-on-month, and 266.28 yuan/head year-on-year.
In addition, Zhang Bin, a pig analyst at Shanghai Ganglian Agricultural Products Division, told the Titanium Media App that the purchase of piglets has also begun to make a profit due to the decline in piglet prices in the early stage, and the average weekly profit of purchased piglets is 283.13 yuan/head, an increase of 17.13 yuan/head from last week's profit
Although corporate earnings expectations have improved, listed pig companies are generally facing financial pressure, so they need to be extra cautious in choosing investment targets to avoid the risk of capital chain breakage.
At present, the 2023 annual reports of most listed pig companies have not yet been disclosed, but combined with the data of the third quarter of last year, the asset-liability ratio of many enterprises has been higher than 70%. The asset-liability ratio of Aonong Biological, Tianbang Food, New Hope, Huatong Co., Ltd., Jinxinong and New Wufeng all exceed 70%, of which ST* Zhengbang and Aonong Biotechnology have successively launched reorganization, and Tianbang Food has also disclosed the reorganization plan.
In addition to the above-mentioned high-debt enterprises, the current ratios of Keming Food, Sunner Development, and Superstar Agriculture and Animal Husbandry in the third quarter of last year and 2023 are all less than 1.
Figure: The debt situation of some listed pig enterprises
Huatai Securities believes that pig stock investment needs to be vigilant against the "expansion trap", not purely based on the volume of heroes, but need to combine capital barriers and operating quality to different pig enterprises to give different average market value. Among them, the short-term financial barriers lie in the cash flow generated by the operation and the possible support of financing, and the core is the cost of breeding in the medium and long term.
In the past, the cost control of the more excellent enterprises have Muyuan shares and Shennong Group, the complete cost of breeding control at about 14-15 yuan/kg. However, from January to February this year, due to the spread of pig disease and the decrease in the number of sales days due to the Spring Festival holiday, the cost sharing increased, and the complete cost of pig breeding increased. Especially in the north of the more serious epidemic infestation, taking Muyuan shares as an example, the company's production capacity in the Central Plains, Northeast and other northern regions has a higher proportion of layout, the first two months of this year the complete cost of breeding rose from 14.6 yuan/kg last year to 15.8 yuan/kg, pig farms concentrated in Yunnan, Liangguang Shennong Group breeding complete cost remained at 14.6 yuan//kg. However, as the impact of the epidemic subsides, costs will return to normal levels.
Figure: Comparison of pig breeding cost levels (yuan/kg) Source: Tianfeng Securities
Judging from the average market value of this year, the valuation of pig companies such as Muyuan shares, Wen's shares, Jin Xinnong, Huatong shares, Tang Renshen, Tianbang Food, and Aonong Biology is lower than the historical average market value range, and other stocks also have significant room for growth.
Source: Tianfeng Securities (as of February)
However, with the increase in pig regulation and production capacity and the scale brought about by the application of scientific breeding technology, pork price fluctuations tend to be smooth, the pig cycle is lengthened, pig enterprises have entered the era of small profits, and the elasticity of pork stocks is also becoming smaller. Industry insiders believe that it will be difficult for individual stocks to see the previous 3-5 times surge in the future. Therefore, holding long-term stocks in the pig industry also requires more patience.