Summary content
This round of pig price inflection point probability is earlier than the consensus expectation of the market. At present, the pig price is in the second bottom stage since the decline in May 2021. Previously, the market unanimously expected that the inflection point of the pig cycle would come as early as June 2022. However, according to the latest data released by China Central Television finance and economics, the number of fertile sows changed by - 0.51% month on month in February, lower than the previous forecast value of + 0.32%, which means that the rate of capacity removal is faster than the market expectation. At the same time, compared with the double bottom interval of 10 months in previous pig cycles, this round has a high probability of a double bottom from April to May after the bottom of pig prices in September 2021. On the whole, the current pace and speed of capacity removal are higher than market expectations, and the turning point of pig price will be earlier than market expectations.
The continuous decline of pig grain ratio has accelerated the reduction of production capacity, and the inflection point of pig cycle is expected to be strengthened in advance. The recent rapid rise in feed prices such as soybean meal and corn, combined with the rapid decline in pig prices after the end of the Spring Festival peak season, has pushed the pig grain ratio below the level-1 warning level of the Ministry of agriculture and rural areas since late February, indicating that the current breeding profits continue to deteriorate. From the cost side, the rise in feed prices will enable downstream breeding enterprises to undertake high-priced feed, exacerbate the deterioration of cash flow, and accelerate the deregulation of production capacity.
From the perspective of industry comparison, the current investment value of the breeding industry is prominent, which is a market environment different from the previous pig cycle. The profit dimension is different from the pig cycle from 2018 to 2020. The sharp price fluctuation leads to the limited profit of farmers; The price center of this round of pig cycle rises moderately. With the gradual release of production capacity, the performance will be released more fully. In terms of valuation, the market in the last round of pig cycle is at a low level as a whole, and the valuation difference between sectors is not significant. Therefore, buying pigs is not the winner or loser of performance; However, after the sharp rise of the track sector from 2020 to 2022, the valuation variance among industries has widened, and the pig sector is the most cost-effective sector. In terms of position, the pig sector has a low concentration of public fund positions in 2021q4.
Looking back on history, the recovery of Shenzhen Agricultural Products Group Co.Ltd(000061) demand after the epidemic has driven the industry to lead the rebound. In the first round of market rebound opened on February 3, 2020, agriculture, forestry, animal husbandry and fishery performed best among all Shenwan industries. In particular, the rebound in the aquaculture sector is believed to be caused by the mismatch between supply and demand after the epidemic repair. The impact of covid-19 epidemic began in the peak season of traditional pork and catering consumption on the eve of the Spring Festival in 2020. However, due to the blockade of the epidemic, the transportation and demand channels of pigs were blocked, and there was a panic sell-off in the industry. After that, with the repair of the epidemic, the recovery of low stock and demand led to the anti seasonal rise in pig prices, which led to the rebound of the breeding sector. Inflation trading based on rising consumer prices has been launched ahead of schedule. Affected by concerns about the geographical conflict between Russia and Ukraine, commodity prices remained high, pushing up Shenzhen Agricultural Products Group Co.Ltd(000061) production costs and accelerating the start of a new round of pig cycle. Consumer goods that are more closely related to inflation, especially agriculture, food, textile and clothing, will become the main line of market transactions this year. This round of superimposed epidemic repair logic will catalyze the start of pig cycle. We believe that the impact of the epidemic counterattack since March on the economy and market will be smaller than that in 2020. According to the logic of epidemic repair, it is expected to catalyze Shenzhen Agricultural Products Group Co.Ltd(000061) to lead the rebound again, and the offline economic repair also deserves the attention of investors.
Risk tips: the de industrialization of pig production capacity is less than expected, the geographical conflict is more than expected, and the change of epidemic situation is more than expected
