Agricultural 2022 investment strategy: pig breeding supplementary enthusiasm re-emerged, white feather yellow feather production capacity fell back 1 pig breeding supplementary column enthusiasm rises again, the inflection point of the pig cycle in 2022 still needs to be observed 2 White feather yellow feather production capacity double decline, 2022 poultry chain prices are expected to rise moderately 3 Pig vaccine development potential is huge, the pig cycle downward drags down the vaccine boom 4 Corn soybean meal prices or maintain a high level, transgenic commercialization gradually approaching Excerpt from the report:

(Report Producer/Author: Huaan Securities, Wang Ying)

<h1 class="pgc-h-arrow-right" data-track="2" >1 Pig breeding is enthusiastic, and the inflection point of the pig cycle in 2022 still needs to be observed</h1>

1.1 Pig Cycle Review

From January 1995 to September 2021, China's pig prices experienced 6 rounds of complete cycles, and the pig price fluctuation cycle was 3-4 years. Among them, the largest wave of increases occurred from May 2006 to April 2008, with an increase of 183.1%, which is the result of a combination of blue ear disease outbreaks and rising corn prices. The seventh cycle from May 2018 to the present, in August 2018 china's first case of non-plague outbreak, after the national pig production capacity fell sharply. The monthly highest price of live pigs in this round of cycle was 37.15 yuan / kg, which was reached in August 2020, with a maximum increase of 251.5%.

1.2 Pig breeding capacity has encountered twists and turns

From October 2019 to May 2021, the supplementary period is completed. According to the data released by the Ministry of Agriculture and Rural Affairs, the national stock of fertile sows reached a minimum of 19.13 million in September 2019, down 39.8% from before the non-plague. With the sharp rise in pig prices, the industry's enthusiasm for supplementing the fence is high, we calculate according to the year-on-year growth rate of the Ministry of Agriculture, in June 2021, the number of fertile sows in the country reached 32.0246 million heads, a significant increase of 67.4% over the low point in September 2019, 1.8% higher than that in August 2018, pig breeding capacity has been fully restored, the only difference is that there is still a certain volume of ternary sows in the breeding sows.

With the stabilization and recovery of the number of fertile sows, the year-on-year growth rate of slaughtering enterprises above designated slaughtering enterprises above designated size in the country turned positive in September 2020, and the year-on-year growth rate from June to September 2021 was as high as 65.8%, 87.4%, 97.5%, and 95.2%. From June to September 2021, the slaughter volume of designated slaughtering enterprises above designated slaughtering enterprises above designated size in the country was 22 million heads, 21.95 million heads, 23.29 million heads and 25.09 million heads, respectively, which was at the highest level in the same period since 2009, and increased by 12.4%, 12.5%, 18.4% and 30.5% respectively over the same period in 2018. Even if we consider the increase in concentration, the current slaughter volume is still at a high level.

With the stabilization and recovery of the number of fertile sows, the year-on-year growth rate of Pig Feed production in China has turned positive since June 2020, and the year-on-year growth rate from March to May 2021 has reached 68.3%, 69.8% and 79.7% respectively. Affected by the high base in the second half of 2020, the year-on-year growth rate of China's pig feed production from June to September 2021 fell to 53.5%, 41.6%, 41.7% and 19.9% respectively.

In June 2021, the inflection point of the fertile sow inventory appeared in stages. After the Spring Festival this year, the price of live pigs continued to fall sharply, on February 26, the fattening of purchased piglets began to fall into losses, and on June 4, self-breeding pigs began to fall into losses, and the enthusiasm of farmers to supplement the fence continued to decline. In June this year, the number of fertile sows was flat month-on-month, and the number of fertile sows at the end of July and September decreased by 0.5%, 0.9% and 2.3% respectively.

The enthusiasm for supplementing the fence has risen again, and the inflection point of the pig cycle still needs to be observed: Yongyi Consulting disclosed data (10.22-10.28): This week's scale farm 15 kg piglets out of the barn price of 306 yuan / head, up 95% week-on-week, 50 kg binary sow price 1523 yuan / head, the weekly ring rose 22.5%, the willingness to make up the fence rebounded significantly;

1.3 The enthusiasm for replenishment is rising again, and the inflection point of the pig cycle still needs to be observed

From October 2019 to May this year, the national stock of fertile sows continued to rise month-on-month, corresponding to the continuous increase in pig output before May next year, and the pig price may fall below this year's low; the slaughter volume above the national scale increased by 65.8%, 87.4%, 97.5% and 95.2% respectively year-on-year from June to September this year, confirming that pig slaughter is still rising rapidly. In June 2021, the national stock of fertile sows appeared at an inflection point, and the inventory of 7-9 months fell by 0.5%, 0.9%, and 2.3% respectively, however, with the pig price soaring by 51% in October, the enthusiasm for supplementing the fence rose again, and then considering the replacement of efficient sows for inefficient sows, the inflection point of the pig cycle still needs to be observed. (Source: Future Think Tank)

1.4 Listed pig enterprises increased significantly year-on-year, and the cost and profitability were significantly differentiated

From January to September 2021, the number of listed pig enterprises increased significantly year-on-year. After experiencing the baptism of the non-plague epidemic, listed pig enterprises have continuously improved their biosecurity prevention and control capabilities, and firmly expanded through ternary seed retention, backcrossing, and supplementary binary sows. In 2020, in addition to Wen's, the output of other listed pig companies has increased to varying degrees. From January to September 2021, all listed pig enterprises achieved positive year-on-year growth in the number of pigs, and the output volume (10,000 heads) from high to low was, Makihara shares 2611, Zhengbang Technology 1184, Wen's shares 898, New Hope 681, Dabeinong 295, Tianbang shares 281, COFCO Jiakang 260, Aonong Biological 205, Tiankang Biological 122, Tang Renshen 115, Jinxinnong 62; the year-on-year growth rate of the output was from high to low, Aonong Biological 167%, Dabeinong 167%, Makihara shares 120%, Zhengbang Technology 100%, Tang Renshen 98%, Jin Xinnong 87%, Tiankang Bio 59%, New Hope 57%, Tianbang shares 39%, Wen's shares 27%. The breeding costs and profitability of listed pig enterprises are significantly differentiated.

<h1 class="pgc-h-arrow-right" data-track="15" >2 The production capacity of white feather yellow feathers has declined twice, and the price of poultry chain is expected to rise moderately in 2022</h1>

2.1.1 In 2020, the white feather ancestral renewal fell by 18% year-on-year, and there are still variables in 2021

In January 2014, China established the White Feather Broiler Alliance to strengthen the management of the introduction of ancestral chickens from the source of the industry, changing the disorderly state of industry introduction, and the number of introductions dropped from a historical peak of 1.54 million sets in 2013 to 1.18 million sets in 2014. In 2015, the United States and France successively broke out avian influenza, and China implemented a ban on the introduction of ancestral chickens in the two countries, and the amount of introduction was further reduced to 720,000 sets. At the beginning of 2017, Poland, Spain and other places continued to erupt highly pathogenic avian influenza, resulting in the escalation of China's introduction ban again, and the introduction and self-fertility of ancestral broiler breeders fell to 687,100 sets throughout the year.

In 2018, the renewal volume of ancestral broiler breeders in China rose to 745,400 sets, and in 2019, it climbed to 1,223,500 sets, and the ancestral generations seriously oversupplied; in 2020, the renewal volume of ancestral broiler breeders in China was 1,002,800 sets, down 18% year-on-year, and the supply and demand of the ancestral generations were balanced. From January to September 2021, the renewal volume of ancestral broiler breeders in China was 840,000 sets, an increase of 10.8% year-on-year, and the annual renewal volume may reach 1.1 million sets, which needs to continue to be closely tracked.

2.1.2 The highest level since 2017 at the ancestral and parental generations

In the 40th week of 2021 (October 4 to October 10), the stock of ancestral breeders was 1.1389 million sets, the highest in the same period since 2017, and the stock of reserve ancestral breeders was 539,000 sets, at the highest level since the same period since 2017. In the 40th week of 2021 (October 4 to October 10), the number of breeders in the birth parent generation was 16.895 million sets, and the number of breeders in the reserve parent generation was 13.778 million sets, both of which reached the highest level since the same period since 2017.

2.1.3 January-September 2021 Parent Generation Chicken Seedling Sales Increased by 6.5% Year-on-Year

From 2019 to 2020, the annual sales volume of China's parent generation chicken seedlings reached 48.31 million sets and 60.07 million sets respectively, an increase of 17.5% and 24.3% year-on-year, respectively; from January to September 2021, the cumulative sales volume of China's parent generation chicken seedlings was 47.5556 million sets, an increase of 6.5% year-on-year;

2.1.4 White feather broiler prices are expected to rise moderately in 2022

At present, the price of white feather broiler chicken is already in the bottom area. Due to the 1 million sets of white feather broiler ancestral updates in 2020, down 18% year-on-year, the price of white feather broilers in 2022 is expected to rise moderately, and the price trend in 2023 needs to continue to track the 2021Q4 ancestral update data.

2.2.1 The production capacity of yellow feather broilers has steadily increased, and the breeding efficiency has continued to be sluggish

From 2012 to 2020, the stock of ancestral breeders of yellow feather broilers in China showed a trend of "first decreasing and then increasing". From 2014 to 2017, affected by factors such as "H7N9 influenza" and the shrinking consumer market, the yellow feather broiler market has been hit many times, and the stock of ancestral breeders has decreased year by year; from 2018 to 2020, the industry production has gradually recovered, and the scale of ancestral generations has increased rapidly year by year, and from 2019 to 2020, the ancestral stock has reached 1,466,100 sets and 1,534,600 sets, and the number of parental stocks has reached 41,233,300 sets and 43,022,000 sets, respectively, all of which have continued to reach a record high. Affected by multiple factors such as the new crown epidemic and the increase in production capacity, the efficiency of yellow feather broiler breeding in 2020 has seriously declined, and the degree of loss is second only to that of 2013, which was affected by the time of "human infection with H7N9 epidemic".

2.2.2 The yellow feather broiler industry is expected to recover moderately in 2022

On October 29, 2021, the average price of yellow feather broiler fast big chicken was 6.78 yuan / catty, up 34.0% year-on-year; the average price of medium-speed chicken was 7.27 yuan / catty, up 16.1% year-on-year; the average price of native chicken was 8.8 yuan / catty, up 8.5% year-on-year; black-bone chicken was 6.6 yuan / catty, up 10% year-on-year. In the 40th week of 2021, the stock of yellow feather broiler breeders in China's monitoring enterprises was 1.443 million sets, lower than the same period in 2019 and 2020, and the national stock of yellow feather broiler breeders in the birth parent generation was 13.39 million sets, at the lowest level since 2018. We expect that the decline in yellow feather broiler production capacity is expected to drive a moderate recovery in the yellow feather broiler breeding industry in 2022.

<h1 class="pgc-h-arrow-right" data-track="29" >3 The development potential of swine vaccines is huge, and the downward trend of the pig cycle drags down the vaccine boom</h1>

3.1 The market potential for swine vaccines is huge

The swine vaccine market has a lot of room for development. The biggest difference in this round of cycle is the acceleration of the scale of breeding, large-scale farms occupy an all-round advantage in land, capital, seed sources, disease prevention and control, management level and other levels, the expansion speed is far beyond the industry average, and the epidemic prevention expenditure is significantly higher than that of free range households. With the continuous increase in the proportion of large-scale breeding and the objective demand for comprehensive prevention and control of diseases in pig farms in the post-non-plague period, the domestic swine vaccine market space is expected to continue to expand. The basic assumptions are as follows:

(1) Assuming that the new equilibrium point of China's pig output is 600 million heads, and the scale breeding volume is 400 million heads; (2) the scale breeding part: refer to the average epidemic prevention cost of the head listed pig enterprises, assuming that the vaccine cost of the large-scale breeding enterprise accounts for 2.5%, the new balance point of the breeding complete cost is 15 yuan / kg, and the average weight of the column is 110 kg, then the average head vaccine usage fee is about 41 yuan / head; (3) The free range part: The average head epidemic prevention medical cost in 2017 is 15.75 yuan, if the vaccine cost accounts for 50%, Suppose that the cost of the vaccine is raised to 10 yuan / head in the later stage. In summary, it can be roughly calculated that without considering the African swine fever vaccine, the potential market space for swine vaccines in China can reach 18.4 billion yuan, compared with the scale of 5.9 billion yuan in 2018, there is still considerable room for growth.

3.2 The decline in pig prices drags down the vaccine boom

From January to September 2021, the year-on-year growth rate of pig vaccine batch issuance data was from high to low, such as 40% of swine ring vaccine, 25.5% of diarrhea vaccines, 19.9% of swine fever vaccines, 11.9% of porcine parvovirus vaccines, 10.7% of foot-and-mouth vaccines, -18% of highly pathogenic porcine blue ear vaccines, and -42.3% of swine pseudorabies vaccines. If you refine to the monthly data, the pig vaccine batch issuance data in 2021 has experienced great ups and downs, mainly because june has been dragged down by the continuous sharp decline in pig prices, and some farmers have begun to choose not to use vaccines.

<h1 class="pgc-h-arrow-right" data-track="35" >4 Corn and soybean meal prices may remain high, and the commercialization of GM is gradually approaching</h1>

4.1 Corn prices may remain relatively high in 2022

The USDA October 2021 Supply and Demand Report predicts that global corn production in 2021/22 (October to September) will be 1.198 billion tons, domestic consumption will be 1.186 billion tons, ending stocks will be 302 million tons, and the treasury-to-consumption ratio will be 25.4%, down 0.2 percentage points from 20/21 and 0.3 percentage points higher than the September forecast, at the lowest level since 16/17. (Source: Future Think Tank)

According to the October forecast of the Market Early Warning Expert Committee of the Ministry of Agriculture and Rural Affairs of China, the national corn balance in 2021/22 was 240,000 tons, and the forecast balance was 850,000 tons lower than that in September, and 4.25 million tons lower than in 2020/21. We expect corn prices to remain relatively high in 2022.

4.2 Soybean and soybean meal prices may remain relatively high in 2022

USDA October 2021 Supply and Demand Report Forecast: 2021/22 Global Soybean Production 385 Million Tons, Domestic Consumption 377 Million Tons, Ending Stocks 104.6 Million Tons, Treasury Consumption Ratio 27.7%, 0.4 Percentage Points Higher than 20/21, 1.6 Percentage Points Higher than September Forecast; 2021/22 Global Soybean Meal Production 258 Million Tons, Domestic Consumption 253 Million Tons, Ending Stocks 12.44 Million Tons, Treasury Consumption Ratio 4.9%, 20/ 20/ This is down 0.2 percentage points from FY21 and up 0.3 percentage points from the September forecast, still at its lowest level since FY11/12.

China's soybeans are highly dependent on imports. China's soybean imports in 19/20 are expected to reach 96 million tons, accounting for 90.4% of domestic consumption that year. Due to the huge import volume of soybeans in China, the price trend of soybeans at home and abroad is very linked. With the easing of the contradiction between global soybean supply and demand, the price of soybeans in China may fall steadily.

4.3 Commercialization of genetically modified corn is approaching

In February 2021, the "Opinions of the CPC Central Committee and the State Council on Comprehensively Promoting Rural Revitalization and Accelerating the Modernization of Agriculture and Rural Areas" was issued, which made it clear that seeds are the foundation of agricultural modernization, emphasizing that China should respect science, strict supervision, and orderly promote the industrialization and application of biological breeding. In July 2021, the Central Committee for Deep Reform deliberated and adopted the Action Plan for the Revitalization of the Seed Industry, raising the safety of seed sources to a strategic height related to national security;

In September 2021, the draft amendment to the Seed Law was submitted for deliberation for the first time, and the main amendments include expanding the scope and protection of the right to plant new varieties, establishing a substantive derivative variety system, and improving the tort compensation system, etc., which will stimulate the original innovation vitality with system orientation and solve the serious problem of seed homogenization from the source. Through many measures, the government has laid the top-level guidelines for the vigorous and orderly development of agricultural biotechnology represented by biological breeding in China, and China's seed industry will enter a new stage of change and development;

<h1 class="pgc-h-arrow-right" data-track="45" > excerpt from the report:</h1>

(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）

Featured report source: [Future Think Tank] "Link".