Since January 12, we released the report “is it the best time to layout the pork sector?” Since, the pork sector has continued to strengthen, with the highest increase of about 10%, which has obtained an obvious excess return compared with the Shanghai and Shenzhen 300. We believe that the current stage is still an important time point for the layout on the left side of the pig cycle, and there is still much room for the pig breeding sector to rise.
The profit of pig breeding industry is the key index to judge the pig cycle. In the previous report, we judged that the upward inflection point of pork price probably appeared at the end of the second quarter in combination with the law that the number of fertile sows was about 10 months ahead of pork. In addition to breeding sows, the profit of pig breeding industry is also a key indicator to judge the pig cycle. The production capacity of pig farmers will be reduced in the downward period, which will lead to the active withdrawal of pig breeding enterprises from the market. The accelerated clearing of production capacity will help stabilize pork prices and start the next upward cycle. Looking back on the past two rounds of pig cycles, the downward cycle ended after the breeding industry suffered losses twice and three times respectively.
After the Spring Festival, breeding enterprises ushered in a new round of losses, which helped to speed up the clearing of production capacity. This round of pig cycle has entered the downward channel since the beginning of 2021. The industry began to suffer losses in June 2021 and turned losses into profits in November. In the five-month loss period, the maximum loss reached 731 yuan / head. Since the Spring Festival, the oversupply of pigs has led to the decline of pork wholesale prices. On February 15, the pig price recorded 19.96 yuan / kg, with a cumulative decline of about 10%. The re decline in pork prices has led to a new round of large-scale losses in the self breeding and autotrophic model. The second wave of capacity removal is being opened, and the relationship between supply and demand will continue to improve in the future.
From the current point of view, the average market value of high-quality pig breeding stocks is in a historically low range. We use Muyuan Foods Co.Ltd(002714) which is a representative breeding enterprise to observe the investment opportunities of the industry. The indicator is the head average market value, that is, the total market value of the listed company / the number of pigs sold by the company in that year. In the cycle from the beginning of 2015 to the beginning of 2019, Muyuan Foods Co.Ltd(002714) has the highest average market value of 18830 yuan / head on July 29, 2015; In the cycle from the beginning of 2019 to the present, the highest average market value of each head is 21302 yuan / head on October 29, 2019. We conservatively estimate that the sales volume of live pigs in Muyuan Foods Co.Ltd(002714) in 2022 is the same as that in 2021, so the average market value of the company was 7613 yuan / head on February 16, which is in a historically low range. This also means that there is still much room for the pig breeding sector to rise.
Risk factors: vaccine failure caused by epidemic variation; China’s policy exceeded expectations.
