Pig prices have been falling since 2022.
Braque Shenzhen Agricultural Products Group Co.Ltd(000061) data terminal shows that on March 15, the national pig price has fallen to 11.98 yuan / kg, and the pig price in North China and Northeast China has generally fallen to 11.5 ~ 11.6 yuan / kg.
On the 15th, the National Bureau of statistics released the operation of the national economy from January to February 2022. Data show that pork prices have fallen 42% year-on-year this year.
At the same time, in view of the week from March 7 to March 11, the national average pig grain price ratio was 4.75 ∶ 1, which was in the level-1 early warning range of excessive decline for three consecutive weeks. The national development and Reform Commission announced on March 15 that it would start the collection and storage of the third batch of central frozen pork reserves during the year.
From the continuous decline of pig prices in the downstream to the continuous rise of feed prices in the upstream, which triggered the country’s third batch of frozen pork collection and storage since the beginning of the year, all kinds of pressure was transmitted to the pig industry, which all showed that the pig production capacity was accelerating and the pig cycle was accelerating and reversing.
Recently, Chen Guanghua, deputy director of the animal husbandry and Veterinary Bureau of the Ministry of agriculture and rural areas, said in an interview with the media that in this round of pig cycle, pig prices have experienced two downward bottoms since their high level from 2020 to early 2021. The first time is in late June 2021, and the second time is in the second week of October 2021. Now it is in the process of the third downward price dip. “This downward trend will continue for some time. In March and April, the pig price may fall to the bottom of about 12 yuan per kilogram, and the breeding loss will increase. I hope that the majority of farmers can keep an eye on the market, control costs, prevent epidemics, step on the pace, and survive the relatively difficult stage of pig production and operation in the recent period,” he said
industry: the market may predict your prediction
At present, there is basically a consensus in the pig market, that is, it is expected that the pig price will rebound to the bottom in the first half of 2022, and there are even views, which are accurate to the time node from April to may 2022. The basic logic is that there will be an inflection point in the stock of fertile sows from June to July 2021, while the stock of fertile sows corresponds to the release of fattening pigs after 10 months, which means that it will become the peak of the supply of fattening pigs at that time, and then the pig price will reverse.
According to the record form of investor relations activities released by Muyuan Foods Co.Ltd(002714) on March 2-3, Qin Jun, Secretary of Muyuan Foods Co.Ltd(002714) board of directors, believed that the pig price was expected to improve in the second half of the year when receiving the research from the representatives of securities companies.
Zhong Zhengsheng, chief economist of Ping An Securities and director of the Research Institute, mentioned in the analysis report in 2021 that from July to August 2022, there may be an inflection point of pig price rise after capacity removal.
Xu Hongzhi, senior researcher of brick consulting, told the first financial reporter that there is a consensus in the industry about the change trend of the stock data of fertile sows and that the pig price will be at the bottom from April to May this year, and the bottom position may exceed the expected judgment.
He believes that the amount of fattening in the spring of 2022 is the highest in recent three years. At that time, the market will bear greater supply pressure than that in the autumn of 2021, and the demand must be significantly weaker than the former. It is entirely possible for the pig price to reach a new low in this round of pig cycle.
However, the market may predict your prediction. Xu Hongzhi explained that when most people in the market have the same expectations for something, this expectation will not be fulfilled or can not be fully fulfilled.
When the pig price bottoms out, it does not mean that a clear reversal will occur. Because with the expansion of leading enterprises, the scale of pig industry has increased rapidly, which has distorted the logic of the original pig cycle, and the reverse effect of market consensus expectation may aggravate this distortion.
When the breeding industry is at the bottom, especially when the profit and loss of the whole breeding industry is below the historical balance. And it usually takes 2-3 months to turn losses into profits. In this process, the market selling behavior increased greatly, and the pig price fell spirally until the overweight pigs were cleared and a new balance between market supply and demand was reached.
For example, in the past 10 years, the average profit of self breeding and autotrophy has fallen into a loss in six time periods. The pig price in the same period is the bottom of that year, and the most recent one is from June to October 2021. After entering 2022, the self breeding and autotrophic profit has become negative again. This means that the bottom of pig price is close at hand.
However, the loss cycle in 2021 is as long as five months. After turning losses into profits for less than three months, it fell into the mire of loss again. Xu Hongzhi said that on the one hand, this shows the severity of the imbalance between supply and demand, which needs a longer time for the market to digest; On the other hand, it also shows that the tolerance of market subjects to losses has been significantly improved.
unprecedented increase in industry concentration
It is noteworthy that the historical trend is based on the past pig industrial structure. In the past, retail investors accounted for a high proportion in the pig industrial structure. Every round of large-scale fluctuation of pig price was based on the fast in and fast out of retail investors to complete the adjustment of pig cycle.
The production capacity of the pig industry has increased significantly in 2018, and the production capacity of the pig industry has recovered significantly. In 2021, the total sales volume of pigs of the top 10 listed pig enterprises was 116 million, accounting for about 17.3% of the total sales volume in China; The total sales volume of the top 20 pig enterprises was 136 million, accounting for 20.4%. Both the top 10 and top 20 pig enterprises have nearly doubled the concentration of pigs in 2019.
Industry insiders lamented that the rapid increase of industry concentration is unprecedented.
Xu Hongzhi said that since large-scale enterprises are typical heavy asset operations, even if there are losses, the decision to reduce production capacity is much more difficult than that of retail investors, and the pace of actual implementation is much slower. Moreover, large-scale enterprises can carry over losses and even continue to expand production without reducing production capacity through financing, which is impossible for retail investors.
In 2021, all pig enterprises except muyuan had huge losses. However, among the listed pig enterprises, Jiangxi Zhengbang Technology Co.Ltd(002157) is the only enterprise that has confirmed that it has greatly reduced its production capacity. Its breeding sow stock has been reduced from 1 million at the end of the third quarter of 2021 to 380000 at the end of 2021, and its sales target for the new year is expected to decline significantly; However, most listed pig enterprises are still expanding their production. Muyuan, Wenshi, New Hope Liuhe Co.Ltd(000876) , tianbang, aonong, Tangrenshen Group Co.Ltd(002567) and other sales targets in 2022 revealed through different channels are all based on the counter trend expansion and development strategy.
He said that for most breeding entities, at the current stage, the capital situation is more important than cost control. It is expected that as long as we survive the last few months without breaking the capital chain, we are expected to enjoy the next price rebound and profit. It goes without saying that the listed enterprises have a large amount of financing and continue to expand production. As long as the small and medium-sized pig farms and even retail investors do not blindly expand production capacity when the pig price is high, they can persist for a longer time with the profits of the previous two years.
Therefore, there may be “the reverse effect of consistency expectation”. Xu Hongzhi believes that under this expectation, everyone is waiting for others to collapse and enjoy the dividend of rising pig prices.
However, if most people think that the pig price will rise in the second half of the year, they will try to stick to that moment; In this way, it will objectively increase the difficulty of removing production capacity, and the market inflection point will come later. Boosted by factors such as pork purchasing and storage, if there is a significant rebound in the second half of the year, but the actual capacity removal is not sufficient, then this rebound is unstable, and the subsequent expansion of production will quickly fill the supply gap. The capacity recovery process from 2019 to 2021 has proved that as long as the profit prospect appears, the production expansion speed of large-scale enterprises is extremely rapid.
He said that the current de capacity of enterprises only focuses on the elimination and optimization of fertile sows, while the reserves in reserve, breeding pigs, pig houses and land have not been significantly reduced. After the price warms up, they can resume and expand production quickly. Moreover, listed enterprises are also facing the pressure of market value management. They have little choice but to continue to expand the scale of breeding. In today’s high degree of scale, the operation of a few head enterprises may affect the whole market trend.
Zhu zengyong, chief analyst of monitoring and early warning of the whole pork industry chain of the Ministry of agriculture and rural areas, told the first financial reporter that the pig cycle is a universal economic phenomenon in the world. The improvement of large-scale level will help stabilize pig production. Although it does not mean that the fluctuation range of pig price will inevitably decline, it will significantly prolong the pig cycle.
feed price rise accelerates pig cycle reversal
As feed costs account for 60% of the cost of raising pigs, the current rise in feed prices will become another challenge facing the pig industry.
Xu Hongzhi said that under normal circumstances, the rise in feed prices will accelerate the reversal of the pig cycle. According to the current soybean meal and corn prices, if it is maintained until the end of June, the feed cost will increase by 400 ~ 500 yuan / ton compared with the beginning of the year, which will increase the breeding cost of each fattening pig by at least 150 yuan. As the cost of feed continues to rise, the degree of breeding loss deepens, the withdrawal of farmers from farms increases, and the speed of capacity removal accelerates.
It should be noted that the recent sharp rise in the price of feed raw materials occurred in a short period of time. The transmission of feed cost to breeding cost and even production rhythm may take some time. Therefore, the impact on pig prices also lags behind.
For the collection and storage of frozen pork, Xu Hongzhi believes that the main significance of pork collection and storage is to boost market confidence, and the impact on pig prices may not be immediate. At present, the state has started the collection and storage twice, but the pig price has not rebounded significantly, which has happened many times in history.
Given that the logic of the normal pig cycle has changed, and the decontamination cycle may be lengthened, Xu Hongzhi said that the key to the reversal of the pig cycle is the full capacity decontamination, and the actual supply capacity of the market began to be significantly lower than the demand scale.
He believes that the turning point of pig price will certainly occur in 2022, but the difference in the market lies in the time node of reversal. If the expectation of repeated bottoming is established, the time node of pig price reversal will be delayed for 1 ~ 2 months, which is the limit, that is, from June to July. After entering the second half of the year, the combination of supply decline and demand recovery will increase the certainty of pig price reversal.
From a macro perspective, Zhu zengyong believes that to stabilize pig production and pork market, we need both market mechanism regulation and appropriate government intervention. In particular, the downward cycle of pig prices needs more appropriate intervention policies for the basic production capacity of pigs. He mentioned the need to strengthen financial and risk management support for small and medium-sized households. As small and medium-sized farmers are still the main body of pig supply in China, their production and operation stability directly affects the stability of pork market in the later stage. When the pig price falls, the capital liquidity not only affects the production and operation activities of small and medium-sized farmers, but also leads to the superposition of major animal diseases and irrational production reduction due to neglect of management, and the decline of pig production capacity exceeds a reasonable range.
