“Now pork is cheaper than many vegetables!” A Chengdu citizen sighed. Recently, a reporter from China Securities Journal visited supermarkets and farmers’ markets in many places and found that pork prices continued to fall. At the same time, the cost of pig breeding continues to rise, and the losses of pig breeding companies are increasing.
Industry insiders believe that the cost of pig breeding will continue to rise. In the face of double pressure, listed companies engaged in pig breeding are taking multiple measures to reduce costs and expand financing to ensure the safety of the capital chain.
pig prices continued to decline
According to the data of the Ministry of agriculture and rural areas, the national average price of pigs in the third week of March was 12.62 yuan / kg, down 2% from the previous week and 55.7% year-on-year. At present, the price of pigs in some areas has fallen below 12 yuan / kg.
While the price of live pigs is falling, the price of feed continues to rise. “The cost of feed is the largest, accounting for 60% of the cost of pig breeding.” Tangrenshen Group Co.Ltd(002567) Secretary sun Shuangsheng said that taking soybean meal as an example, the price of soybean meal at the beginning of the year was about 4000 yuan per ton, and now it has risen to about 5500 yuan per ton. He said that at present, pig breeding enterprises are under pressure at both ends. “On the one hand, pig prices continue to fall, on the other hand, raw material prices rise rapidly.”
Li Ming (a pseudonym), the person in charge of a pig breeding enterprise in Central China, told the China Securities Journal that the cost of pig breeding is generally between 17 yuan / kg and 18 yuan / kg, and the loss has strained the cash flow of many enterprises.
On March 22, the Ministry of agriculture and rural areas held a departmental coordination meeting. The meeting held that affected by the relationship between supply and demand, the price of live pigs has entered the downward range of the cycle, coupled with the recent rise in the price of bulk feed raw materials and the continuous loss of breeding, many farmers have operating difficulties, which need the joint efforts of relevant departments around the country to help farmers tide over the difficulties.
it will take time for pig prices to stabilize
Industry insiders said that under the influence of multiple factors, the cost of pig breeding will be further increased in the future.
Bai Wenxi, chief economist of IPG China, believes that driven by the sharp rise in the price of feed raw materials, the performance pressure of major pig enterprises will be more severe, but it is difficult to take the initiative to withdraw production capacity. The oversupply market pattern and industry fundamentals are difficult to change in the short term. Pig prices will remain low and fluctuate, and can stabilize and recover as soon as the second half of the year.
Wang Qiang (pseudonym), head of a listed company engaged in pig breeding, told the China Securities Journal, “The current pig price should be in the bottom area. Judging from the number of fertile sows and piglets in the second half of last year, the number of commercial pigs in the first half of this year will still maintain an inertial growth, which is also an important reason for the continued decline of pig prices since February. At present, the industry is generally optimistic about the second half of this year. At that time, the number of commercial pigs in the second half of this year will begin to decline, and the pig price is expected to rise.”
New Hope Liuhe Co.Ltd(000876) executive chairman and president Zhang Minggui believes that “2022 is a challenging year for the pig industry. The market is still low on the whole, and the pig price is under great pressure in the first half of the year. There will be a relatively low point from March to may, and then it will start to adjust gradually.”
Sun Shuangsheng believes that the current pig cycle has reached the bottom position. “In 2019 and 2020, affected by African swine fever, the industry went to production capacity very quickly, resulting in tension between supply and demand. The price of hairy pigs reached up to 40 yuan / kg, and now it has fallen below 12 yuan / kg in many places.” He introduced that at present, pig enterprises have large losses. If the current situation continues for 1-2 months, it is expected to completely reduce production capacity.
coping cycle shows its power
In the face of the downward cycle, listed companies engaged in pig breeding actively respond by reducing costs and increasing efficiency and expanding financing.
Cost reduction is an important measure for breeding enterprises to deal with the rising cost. Wang Qiang said, “Facing the pressure of rising feed raw material prices and falling pig prices, the company mainly digests it through various cost reduction methods. For example, further optimize feed formula and improve precision feeding technology to reduce feed meat ratio, so as to reduce feed use cost; further expand breeding scale and gradually dilute management expenses; continuously improve epidemic prevention management level, strengthen execution through informatization, and improve pig survival rate and health.”
Smart farming is also a magic weapon to reduce costs. Taking Hunan New Wellful Co.Ltd(600975) as an example, in 2021, the company started the smart pig raising project with Huawei. “Taking the indicators of pig survival rate and feed meat ratio as an example, from the pilot situation, relying on the intelligent breeding system, the survival rate of pigs is 2% higher than the best year of traditional breeding, and the feed meat ratio decreases by 0.2. These are the key points of pig breeding in the pig industry, which can reduce the cost of pig breeding.” Hunan New Wellful Co.Ltd(600975) relevant person in charge.
To smoothly cross the pig cycle, the safety of the capital chain is also crucial. Sun Shuangsheng said, “in the early stage, we have completed the refinancing of 2.8 billion yuan, which greatly ensures the safety of the capital chain. Our bank loans are also medium and long-term project loans, with a term of 5-10 years. If we seek short-term loans at this time, there will be a lot of capital pressure to pay back the loans.”
COFCO futures researcher said that at present, large pig breeding enterprises are gradually completing the establishment of futures team and constantly improving the research and trading system. Some large pig breeding enterprises have successful hedging experience and successfully avoided operational risks in the process of pig price decline. Small and medium-sized farmers are also constantly participating in the “insurance + futures” project. In the future, the pig breeding industry will continue to explore and advance on the road of combination of time and cash and combination of industry and finance. Breeding enterprises will also continue to accumulate hedging experience in practice and enhance the comprehensive management ability of market risk.
