This round of pig cycle will enter the end of the "high profit era" in 2021. In the context of the continuous recovery of pig production capacity in China, the oversupply of pork led to the "rapid decline" of pig prices in the first October.
According to the data of China pig breeding network, the national pig price (foreign three yuan) fell below 11 yuan / kg in early October, the lowest price in the whole year. After the National Day holiday, pig prices rebounded seasonally, once rising to nearly 19 yuan / kg.
The sharp decline in pig prices has led the industry to a total loss. In the first three quarters, all listed pig enterprises except Muyuan Foods Co.Ltd(002714) (002714. SZ) recorded losses. Wens Foodstuff Group Co.Ltd(300498) (300498. SZ) is a report card with a huge loss of 9.7 billion yuan.
During the downward cycle, listed pig enterprises were repeatedly sold off. The data show that the average annual increase and median increase of 25 stocks in the pig sector were - 7.56% and - 8.82% respectively, underperforming the main stock indexes of a shares.
The large loss of pig enterprises means that the bottom of the cycle is near. With the reversal of pig prices, the subsequent growth of pig enterprises will drive the improvement of cash flow and performance, and the growth expectation of the sector will be clearer.
The downward cycle of makes listed pig enterprises "spend the winter all year"
Compared with the twists and turns of pig prices in 2020, in 2021, the supply side of pigs continued to recover, making the cycle quickly enter the downward channel. In the first October, pig prices fell by more than 70%, and the speed and range of pig prices fell exceeded the expectations of the industry.
China pig network shows that the national pig price began to fall all the way after rising to the highest 36.9 yuan / kg in the year in early January. Since the second quarter, the pig price has been losing ground. In late June, the pig price fell to 12.67 yuan / kg, below the breeding cost of the whole industry. After a short rebound of only one week, the pig price fell again and fell below 11 yuan / kg in early October.
The sharp fluctuation of pig prices makes the performance of listed pig enterprises such as "riding a roller coaster". The third quarterly report showed that the net profits of the five listed pig enterprises all fell, with a total loss of 17.6 billion yuan, of which three lost all the profits of last year.
The performance of Muyuan Foods Co.Ltd(002714) which is famous for its cost advantage and made a big profit of 27.4 billion in 2020 also declined sharply. From January to September, the company's net profit attributable to the parent decreased by 58.53% year-on-year. From January to November, the company sold 35.239 million pigs, realizing a sales revenue of 67.325 billion yuan. Muyuan Foods Co.Ltd(002714) in the latest investor relations activity record, the company expects to build a pig breeding capacity of more than 70 million by the end of 2021, and the current pig stock is about 36 million.
A noteworthy phenomenon is that in this round of pig cycle, Muyuan Foods Co.Ltd(002714) , Wens Foodstuff Group Co.Ltd(300498) , Jiangxi Zhengbang Technology Co.Ltd(002157) , New Hope Liuhe Co.Ltd(000876) , Tech-Bank Food Co.Ltd(002124) and other top listed pig enterprises continued to expand their year-on-year decline in net profit in the first three quarters compared with the previous statistical cycle.
After the National Day holiday, pig prices stopped falling and rebounded, with the highest range rebounding to nearly 19 yuan, and the share prices of listed pig enterprises also swept away the previous haze. Data show that since October, pig stocks have increased by an average of 15%. Fujian Aonong Biological Technology Group Incorporation Limited(603363) rose more than 40%, and Zhejiang Huatong Meat Products Co.Ltd(002840) , Beijing Dabeinong Technology Group Co.Ltd(002385) rose more than 30%.
Does the significant recovery in the performance of the pig plate mean that the cycle has come out of the bottom? In the view of an agricultural industry analyst, this rebound is not a cycle reversal, and the process of capacity removal is difficult to say and easy.
"On the supply side, pig prices continued to decline in the first three quarters, resulting in increased resistance on the breeding side and a certain reduction in supply. At the same time, the government collected and stored" to support the market during the year "The effect gradually appears. With the increase of pork sales and demand in autumn and winter, in the short term, the oversold pig price rebounded in the early stage and will remain relatively high. In the medium and long term, the trend of capacity removal is clear, but the process is not smooth, and the inflection point of the cycle may appear in the middle and next stage of the second quarter of 2022." The analyst said.
can pork stocks be bought the night before the cycle reversal
The cycle reversal means that the supply of pork is less than the demand after the capacity is removed, driving the pig price to rise again. As an important index for observing the pig cycle, the number of fertile sows remained negative for five consecutive months from July to November 2021, according to the data of the Ministry of agriculture, which means that the production capacity peaked and the cycle was on the left side of reversal.
The process of capacity removal is one of the key factors of cycle reversal. As of November 2021, the number of fertile sows in China is 42.96 million, which is still far from the normal level of 41 million.
The aforementioned analysts believe that the rebound in pig prices has turned the breeding profit from loss to profit, and China's industry competition pattern dominated by retail breeding may slow down the process of reducing the production capacity of breeding sows.
"At present, the fundamentals of oversupply of pigs have not changed much. The off-season of pork consumption will be ushered in after the Spring Festival in the first quarter, and the potential decline on the demand side may drag down pork prices," said one of the analysts, "It's hard to say whether it will fall below the low point of this year's pig price. However, the probability in the first half of 2022 is still a period of large-scale pork supply, the enthusiasm for pig breeding during the rebound is renewed, and the inflection point of the pig cycle still needs to be observed."
The approaching inflection point of the cycle means that there is hope for the investment layout of listed pig enterprises. Although the final sales situation has not been fully released, it has exceeded the level of last year from the sales briefing of head pig enterprises in November.
So, if the inflection point of the cycle is not present, can investors layout plate investment in advance? A Shanghai private equity fund manager believes that the recent rebound in the share price of listed pig enterprises is reflected in the reversal of expectations. "This is a phenomenon that the most pessimistic investment period in the whole industry has passed after the peak of production capacity. Pig enterprises are actually investment targets with the attributes of 'cycle and growth'. From the perspective of cycle, the increase of reversal expectation and the arrival of formal reversal will catalyze the stock price of listed pig enterprises." Said the private equity fund manager.
In his view, it is not appropriate to be overly optimistic about the future market of pig enterprises before the cycle reversal. "There will certainly be setbacks in the deregulation of production capacity. The main reason is that Chinese pigs are still dominated by retail investors. Retail investors are easy to catch up with the rise and kill the fall, that is, when the pig price falls sharply, sow deregulation is carried out, and when the price rebounds, it is optimistic about the future market and easy to fill the column, resulting in a wave of ups and downs in the production capacity of the whole industry." He added.
The accelerated process of large-scale breeding and the long-term concentration of industry pattern are the long-term development logic of listed pig enterprises. On the one hand, large-scale breeding is more conducive to disease prevention and control, improve breeding efficiency and control costs; On the other hand, a more concentrated industry pattern can promote the healthy and long-term development of the industry.
"From the perspective of growth attribute, the current pig price is on the left side of the bottom, and the reversal period is worth looking forward to. Under the trend of large-scale industry, pig enterprises with relatively good financial and breeding cost management ability will usher in a substantial restoration of profitability after the reversal of pig price, and the profit scale of excellent enterprises may greatly exceed the performance of the last round of pig cycle." The fund manager added.
(First Finance)
