Market review this week
Last week (2022 / 2 / 14-2022 / 2 / 20), the CSI 300 index rose by 1.08%, while the agriculture, forestry, animal husbandry and fishery index fell by 1.02% in the same period, underperforming the CSI 300 index by 2.10 percentage points, ranking 24th among 28 Shenwan industries.
In terms of sub sectors, the growth and decline of planting / animal health / Shenzhen Agricultural Products Group Co.Ltd(000061) processing / fishery / livestock and poultry breeding / feed sectors last week were 1.85%, 1.38%, 1.23%, 0.28%, – 2.05% and – 2.74% respectively.
Core ideas of this week
[pig breeding] the second bottom is accelerated to meet the establishment of cycle reversal
Differences on the deregulation of sow production capacity:
At present, there are still great differences in the market on the reduction of sow production capacity. According to the data released by the Ministry of agriculture and rural areas, the number of fertile sows in China decreased by only 0.9% month on month in January, and 2.74 million sows were reduced in seven months. The range of capacity reduction is far from enough to start a new cycle, and a new cycle inflection point may appear in the second quarter of 2023. However, according to the data of the sample points of the animal husbandry association, at the end of 2021, the production capacity of large-scale farms was reduced by 17% year-on-year, and the reduction range of retail investors was higher year-on-year. According to the sow material data investigated by experts such as zhuyi.com, the current reduction range of sow production capacity has reached more than 20%. If sows continue to be reduced in the next 2-3 months, it will be enough to support a new round of pig price rebound. Through grassroots research, we found that the current production capacity is going to the North faster than the south, and retail investors faster than large-scale farms. We believe that under the background of low pig prices and high cash flow pressure in February, sows can be bred or accelerated in February, and the main body of capacity removal in the future is local moderate scale enterprises with an annual output of 1000-5000 commercial pigs.
Differences on the breeding loss in the first half of the year and the trend of pig price from April to May:
Historically, the pig cycle is characterized by short rise cycle and long decline cycle. From January 2021, the pig price has fallen for 13 months, and the industry has suffered losses since June 2021, of which 7 months have suffered large losses. At present, the market believes that the pig price may rebound periodically from April to may, mainly based on the reduction of sows in May 2021, resulting in the reduction of pig supply in April this year. This view is also verified by the data of newborn healthy piglets from October to January this year. We found that the decline of pig prices in the north is faster than that in the south, and the breeding cost is also lower than that in the south. There is still room for decline in pig prices in the north. In January and February this year, the completion of the scale market was less than expected, and there was a certain phenomenon of column pressure. The rise of feed preparation before the Spring Festival in the South reflected the market main body’s column pressure and bullish mood. After the Spring Festival, it was found that the market was misjudged, so there was a large number of sales. We observed a large number of moderate scale scenes, facing the tense situation of cash flow, and there may be some stampede sales in the second quarter, The decline of pig prices may accelerate again, and the losses of the industry may continue to intensify. We believe that there are few active elimination of binary sows in the current industry, and the statistics of eliminated sows ignore some ternary sows with less parity, which may cause data distortion. At present, the degree of capacity removal is not fierce enough, and the loss in the second quarter may aggravate or lead to the elimination of sows with offspring. The capital market may form a consistent expectation of cycle reversal in the accelerated decline of pig price in the second quarter.
[white feather broiler] last week, the consumption of chicken was in the doldrums, while the release of broilers returned to normal. Slaughtering enterprises flexibly adjusted the operating rate. It is expected that the price of wool chicken or near the cost line will fluctuate next week. At present, the enthusiasm of chicken seedling to make up the fence is low, the seedling price has fallen to a low point, and there is a phenomenon of sucking eggs. It is expected that the chicken seedling price will rebound slightly after stopping falling next week.
[animal protection] pay attention to the new progress in the research and development of non plague subunit vaccine.
There are four evaluation methods for veterinary drugs: general evaluation, priority evaluation, emergency evaluation and filing review. For veterinary drugs required for emergency disposal of sudden major animal diseases, the Ministry of agriculture can start the emergency evaluation method. The evaluation center shall carry out emergency evaluation according to the requirements of the Veterinary Bureau of the Ministry of agriculture, focusing on the safety, effectiveness and quality controllability of veterinary drugs, and non key data may not be provided temporarily. If it is suggested that it can be used for emergency, the Veterinary Bureau of the Ministry of Agriculture shall put forward review opinions according to the evaluation opinions of the evaluation center, and issue technical standard documents after being approved by the leaders of the Department in charge. Relevant veterinary drug manufacturers shall apply for temporary veterinary drug product approval number in accordance with the measures for the administration of veterinary drug product approval number.
At present, some enterprises have submitted the application for emergency evaluation of African classical swine fever genetic engineering subunit vaccine to the Ministry of agriculture and rural areas. The subunit vaccine has absolute advantages in safety. Generally, there is no problem similar to the strengthening of gene deletion vaccine strain. Once the emergency evaluation is passed, it is likely to directly enter the application stage of veterinary drug products. We have observed that the Ministry of agriculture and rural areas has recently adjusted the emergency evaluation criteria to promote the rhythm of non plague vaccine R & D and commercial application. If it is successfully commercialized in the future, it will drive the expansion of the whole vaccine sector and usher in major adjustments in the industry competition pattern. It is recommended to focus on Pulike Biological Engineering Inc(603566) with the advantage of subunit vaccine research and development.
[seed industry] we believe that the short-term valuation correction of the seed industry sector will not change the long-term trend of the industry. The intensive introduction of seed industry policies in 2021, the release of national corn and rice variety approval standard (revised in 2021) and the adoption of the draft amendment to the seed law are aimed at encouraging seed industry innovation and combating deck infringement, We believe that the intellectual property protection mechanism of seed industry will continue to be strengthened in the future, which is conducive to seed enterprises with technological innovation ability to seize a higher market share. In 2022, China’s corn supply and demand remained tight, the price fluctuated at a high level, and the price of soybean meal continued to strengthen due to the rise of us beans. We believe that under the high grain price, China’s biological breeding related support policies are expected to be further introduced.
Investment advice
[pig breeding] cost reduction and efficiency increase in 2022 is still the main theme of the industry. We select the target according to the enterprise’s “changes in the stock of fertile sows” and “cost improvement”. The former determines whether it can step on the right pace next year, and the latter determines whether it can survive the cold winter and profit space next year. We mainly recommend the leader Muyuan Foods Co.Ltd(002714) (with significant cost advantage and seriously underestimated average market value), And other pig enterprises with abundant cash flow, large room for cost improvement and predictable marketing.
[white feather broiler] the industrial chain has experienced a loss for one year. The deep loss in the downstream inhibits the enthusiasm to make up the fence. The decline in the price of chicken seedlings affects the profits of the incubator, or forces the chicken breeding farm to take the initiative to reduce the production capacity. We may see the month on month contraction of the supply of chicken seedlings in the third quarter of 2022, and follow-up pay attention to the changes in the stock of grandparents and parents. Recommend enterprises that focus on the layout of the whole industrial chain business and the target of the upstream main chicken seedling sales business.
[yellow feather broiler] even if the industry accelerates the clearing of production capacity at the low point of the cycle, the head enterprises still expand against the trend. It is expected that the market share of the head enterprises will further increase after the gradual withdrawal of free range farmers in the future. It is recommended to pay attention to the leading leaders in continuous capacity expansion and cost control, as well as enterprises that comply with the development trend of frozen fresh sales.
[dynamic insurance] the sector has fallen to a reasonable range due to the drag of pig price. It is expected that the reversal of pig price in the second half of 2022 will lead to the upward prosperity of the industry, and the sector is expected to usher in valuation repair. It is suggested to lay out at a low level. It is recommended to pay attention to Pulike Biological Engineering Inc(603566) with obvious advantages in subunit vaccine research and development, as well as industry leaders with rich product reserves.
[seed industry] with the intensive introduction of favorable policies and the improvement of supply and demand fundamentals, the industry has ushered in an upward cycle. It is expected that high-quality seed enterprises will usher in a performance release period in the next few years, the curtain of genetically modified organism breeding will open, the corn seed industry will usher in strong capacity expansion expectations, and the leading seed enterprises may usher in a high-speed growth stage. It is recommended to pay attention to the leading Yuan Longping High-Tech Agriculture Co.Ltd(000998) and other seed enterprises with rich reserves of transgenic technologies and varieties.
Risk tips
Covid-19 epidemic spread risk, international situation change risk, policy implementation less than expected risk, etc.
