In January, the pig price gradually declined, and the second bottom was quickly opened after the festival. After the rebound of pig prices in Q4 last year, the average sales price of pigs in January gradually declined. At present, after the pig price Festival, it quickly opened a second bottom. On February 28, the national development and Reform Commission announced that the pig price had entered the level-1 early warning range of excessive decline and would immediately start the central collection and storage work. However, from the historical experience, the government’s collection and storage can only boost the confidence of farmers in the short term, but can not fundamentally reverse the cyclical trend. After the festival, the market demand is generally weak, while the breeding end is active, which is difficult to support the market. It is expected that pig prices will continue to weaken in the first half of the year. The rhythm of listed pig enterprises in January was relatively stable. January is in the period of concentrated slaughter of live pigs before the festival. The breeding end is actively slaughter, and the behavior of pressing the fence is significantly reduced. From the data released in January, all listed pig enterprises have maintained a relatively stable release rhythm. We believe that at the bottom of the current cycle and the second bottom of pig prices, cash and cost advantages are the most core elements to ensure the stability and safety of the company’s operation through the bottom of this cycle. At this stage, the core goal of each enterprise’s operation is to focus on stability, strive to improve their own production performance and reduce breeding costs, so as to reduce losses and cash flow losses, and will no longer seek large-scale capital expenditure and sustained and rapid growth of marketing scale.
The goal of launching in the next 22 years is to stabilize the market, reduce costs and increase efficiency. From the realization of the marketing goal in 21 years, most enterprises have achieved the annual planning marketing goal. For the 22-year target, at this stage, all enterprises say that they focus on stability, and most of them have no plans to further expand production capacity rapidly, but are committed to gradually digesting the existing production capacity and improving production efficiency. On the basis of the continuous and significant improvement of the complete cost in the early stage, each enterprise further put forward a new cost target for 22 years, continued to promote cost reduction measures, and the loss and cash flow of the enterprise are expected to be continuously improved.
We believe that the rapid opening of the second bottom of pig prices after the year is in line with our early judgment, and then superimposed with the sharp rise in feed prices caused by the current large Shenzhen Agricultural Products Group Co.Ltd(000061) comprehensive price rise, the breeding cost of farmers continues to rise, which will further amplify the loss of the industry and the loss of cash flow at the breeding end will continue to expand.
We believe that under the background of continuous losses and loss of cash flow, it is highly certain to start the second round of deregulation of sow production capacity in the first half of this year. Moreover, we judge that, unlike the previous capacity removal, which is mainly based on ternary and inefficient sows, the second round of capacity removal will be more forced to “liquidate” farmers due to the depletion of cash flow. Therefore, the speed and range of capacity removal are expected to be further improved. It is expected that the subsequent inventory data is expected to continue to confirm the trend of capacity de urbanization. At present, the continuous reduction of production capacity will further strengthen our expectation of starting the next round of cycle rise in 22 years.
Investment suggestion: at the current time point, we still focus on the pig breeding sector. We believe that at this stage, the inflection point of the cycle is expected to gradually increase. Although the sector has increased significantly, the de novo average market value dimension is still in the bottom range. Continue to recommend and focus on the breeding head enterprises with obvious advantages in cost control, followed by the second-line and small American Standard enterprises that focus on the reversal of difficulties, the expectation of greater cost improvement and the certainty of listing growth, with emphasis on Wens Foodstuff Group Co.Ltd(300498) , Tecon Biology Co.Ltd(002100) , Beijing Dabeinong Technology Group Co.Ltd(002385) , etc.
Risk tips: livestock and poultry price fluctuation risk, less than expected expansion of listed enterprises, epidemic risk, less than expected enterprise cost control, etc.
