The cold winter of pig enterprises is about to pass.
Since the beginning of this year, although the share prices of Muyuan Foods Co.Ltd(002714) (002714. SZ), Wens Foodstuff Group Co.Ltd(300498) (300498. SZ), New Hope Liuhe Co.Ltd(000876) (000876. SZ) and Jiangxi Zhengbang Technology Co.Ltd(002157) (002157. SZ) have fallen by 9%, 2%, 36% and 42% respectively, the share prices of various head companies have rebounded after hitting new lows in recent years in the middle of the year. Among them, Wens Foodstuff Group Co.Ltd(300498) rebounded more than 40%, and New Hope Liuhe Co.Ltd(000876) also rebounded more than 30% from the bottom.
After the sharp rise and fall of pig prices, what will be the trend of pork stocks next year?
the inflection point of pig price will be
China’s pig breeding industry has significant cyclical characteristics. The cyclical fluctuation of pig prices is obvious, generally 3-4 years as a cycle.
Different from the general cycle products, the core point for the pig breeding industry is profit. When large, medium and small farmers see that the market is profitable, they begin to enter, so as to improve supply. When there is oversupply in the market, the pig price drops, the price gradually approaches the cost line of each farmer, and the production capacity begins to be cleared, thus gradually entering the next cycle. In the profit led cycle, the market adjusts itself through price in the industry.
In 2018, the pig plague in Africa severely hit the pig breeding industry, and a large number of farms were forced to withdraw, resulting in a sharp decline in the industry’s production capacity. With the soaring price of pork and the effective control of classical swine fever, the supply of pork has recovered from surplus, and the decline of pig price is inevitable. On October 8 this year, the pig price hit a stage low of 10.78 yuan / kg, down 73.69% from the high of 40.98 yuan / kg in November 2019, which is close to the 10-year low of 10.01 yuan / kg. With the increase of demand at the end of the year and the beginning of the inflection point at the supply side, the current price is stable at about 17.5 yuan / kg.
Source: interface news research department
Since June, the breeding of captive pigs has entered a loss stage, of which the loss per pig was as high as 771 yuan in early October. In the third quarter of this year, the net profit attributable to the parent of listed pig enterprises Muyuan Foods Co.Ltd(002714) , Jiangxi Zhengbang Technology Co.Ltd(002157) , Wens Foodstuff Group Co.Ltd(300498) and New Hope Liuhe Co.Ltd(000876) lost 822 million yuan, 6.22 billion yuan, 7.189 billion yuan and 2.986 billion yuan respectively, and the four major pig enterprises fell into a state of comprehensive loss.
However, it should be pointed out that the loss of raw pig breeding over the years means that the bottom of the industry is approaching.
Source: interface news research department
Continuous losses have brought panic to farmers. According to Yongyi consulting data, the average weight of commercial pigs in China once exceeded 135 kg / head in May this year, and has dropped to 125 kg / head by the end of October, which is at the low point since 2020. In the context of the rapid decline in pig prices, the decline in average weight of slaughter indicates that there is a panic sell-off in the industry, and farmers hope to sell goods quickly.
Under a series of panic and sharp price drop, the inflection point of the industry has emerged. By the end of September this year, China’s pig stock was 43800. Although it was still at the high point since 2014, it showed signs of decline compared with 43900 in June.
Source: interface news research department
The more important index is the number of sows that can be bred. In October, the number of fertile sows in China was 43.48 million, down nearly 5% from the five-year high of 45.64 million in June. Since July, the number of fertile sows has declined for four consecutive months. The number of fertile sows often determines the pork production ten months later. The inflection point at this time indicates that the inflection point of pig stock will appear in the second quarter of 2022.
Source: interface news research department
welcome a buying opportunity
From the data, pig prices have reached the bottom. As a typical cyclical stock, pig enterprises usher in opportunities.
Pig grain price ratio is a key profit index to measure China’s pig breeding industry, and it is also the basis for relevant institutions to formulate policies. When the pig grain ratio falls below 5, a level-1 early warning will be triggered. At the beginning of October this year, the specific price of pig grain once fell below 4, a new low in the past decade, which shows that the industry as a whole is in the stage of deep loss in the past decade. In the same month, the Ministry of Commerce, together with the national development and Reform Commission, the Ministry of Finance and other departments, collected and stored 30000 tons of central reserve pork, which was the fourth batch of central reserve pork launched this year. It should be noted that the collection and storage is more to give market confidence and stabilize sentiment. Historically, the average increase of pig price within half a year after storage was less than 20%. In essence, the recovery of pig prices also needs self-regulation.
Source: interface news research department
From the history of pig price, the bottom of pig price will not be achieved overnight. Although the current price is in the bottom range, there is still not enough time to “grind the bottom”. Generally speaking, it takes one to two years for the pig price to be in the bottom range. Now it only runs for half a year, and the time is “not enough”.
Therefore, the interface News Research Department expects that the pig price will face the test again in the middle of next year. Considering the large fluctuation range and rapid fluctuation rate of the current round of prices, combined with the turning point of breeding sows and the loss time of large pig enterprises, we expect the pork price to bottom twice in the middle of next year, the price will be higher than the previous low, and the whole industry will usher in a good opportunity to buy.
As for the four leading pig enterprises Muyuan Foods Co.Ltd(002714) , Wens Foodstuff Group Co.Ltd(300498) , New Hope Liuhe Co.Ltd(000876) and Jiangxi Zhengbang Technology Co.Ltd(002157) with high market attention, Jiangxi Zhengbang Technology Co.Ltd(002157) has the greatest debt pressure, Wens Foodstuff Group Co.Ltd(300498) is the most stable, Muyuan Foods Co.Ltd(002714) is the most radical, and New Hope Liuhe Co.Ltd(000876) has the highest relative valuation.
Specifically, from the net cash outflow from investment activities in the third quarter of this year, it can be seen that although the four leading enterprises reduced their investment proportion year-on-year, the relative reduction of Muyuan Foods Co.Ltd(002714) was the smallest and the asset liability ratio was the smallest. It is worth mentioning that the company completed a bond issue of 9.55 billion yuan in August this year, which effectively alleviated the capital risk in the medium and short term. However, due to the rapid decline of the current ratio in recent quarters, the capital side also began to face pressure.
Jiangxi Zhengbang Technology Co.Ltd(002157) with an asset liability ratio of 75.23% and a current ratio of 0.81, the company has begun to significantly reduce its investment. It should be pointed out that in early December, the rating agency Dongfang Jincheng decided to downgrade the credit rating of Jiangxi Zhengbang Technology Co.Ltd(002157) subject and “Zhengbang convertible bonds” from “AA +” to “AA”, and the rating outlook was “stable”. Before that, in order to solve its own debt problem, Jiangxi Zhengbang Technology Co.Ltd(002157) announced that the controlling shareholder Zhengbang group and persons acting in concert planned to introduce Cinda for market-oriented debt to equity swap, with a scale of no more than 1.98 billion yuan.
Compared with other pig enterprises, Wens Foodstuff Group Co.Ltd(300498) expanded the mildest in the previous pig cycle, so the low point of this round was least affected by the cycle. No matter from the perspective of asset liability ratio or current ratio, the pressure on the company’s debt side is the lightest among the leading pig enterprises. In the future, it is expected to continue to “increase positions” at the low point by virtue of capital advantages.
Source: interface news research department
(interface News)
