[market this week]
Shenwan agriculture, forestry, animal husbandry and fishery industry (- 4.72%), ranking of Shenwan industry (28 / 28); Shanghai Stock Index (- 0.94%), CSI 300 (- 1.06%), small and medium-sized 100 (- 2.14%);
[core view]
Aquaculture industry:
In terms of live pigs, on April 8, the national development and Reform Commission announced that the recent pig grain price ratio continued to be lower than 5:1, which is in the level-1 early warning range of excessive decline. It is planned to carry out the fourth batch of central frozen collection and storage work within the year and collect and store another 40000 tons of frozen pork. We believe that the resumption of the collection and storage work by the national development and Reform Commission will stabilize the market fluctuation to a certain extent, boost the confidence of pig trading in the short term, and superimpose the demand of some slaughtering enterprises for bargain hunting and replenishment, which will bring some support to the pig price. However, the overall supply of pigs is still relatively loose. At the same time, the local epidemic situation is repeated, the advocacy is not gathered, the catering consumption is suppressed, and the market rebound is expected to be limited. Continuous attention should be paid to the degree and duration of epidemic control.
Pig prices and industry profits hovered at a low level, and the de industrialization of production capacity continued, but Bo’s rebound sentiment remained. According to China pig network, as of April 8, the price of live pigs (foreign three yuan) was 12.53 yuan / kg, down 0.1% from last week. At the same time, global supply chain pressure and regional disputes pushed up Shenzhen Agricultural Products Group Co.Ltd(000061) bulk prices, indirectly raising the cost of breeding feed, and the breeding profit is still in the deep loss range. As of April 8, the profit of pig self breeding was -511.57 yuan / head, and the de production capacity of the industry will continue. However, we also note that the current industry’s willingness to eliminate production capacity is not as strong as expected, the rebound sentiment in the late stage of the industry expo is strong, and the group households maintain a stable pace of listing. According to Yongyi data, 40% of 10000 large-scale enterprises in the province and 48% of listed enterprises expect the number of sows to decrease from April to June. They believe that stable production and increased production account for the majority, and the speed of capacity removal may be lower than expected.
Sales of major listed pig enterprises in March: the pig market weakened with the slowdown of demand after the festival, the pig price decreased, the superimposed feed cost increased, and the deep loss of breeding continued. In terms of volume, the expectation of major pig enterprises for the future market is weak, and the superimposed part of the marketing task is moved to the post Festival, and the marketing volume increases month on month. In March, 4.1787 million pigs were sold by major pig enterprises (excluding the original animal husbandry), with a month on month increase of 47.5%. The slaughter volume of muyuan pigs reached a new high price. After the pig line in March, it entered the off-season, the overall demand slowed down, and the pig market fell. In March, the sales price of pigs of major pig enterprises was still falling, but supported by the demand for storage and slaughtering reserves, the decline narrowed. Muyuan, Zhengbang and Wenshi were – 5.7%, – 3.2% and – 3.0% month on month respectively.
From the feed data, on March 15, the feed industry association announced the feed production situation from January to February 2022. The total output of industrial feed in China was 43.84 million tons, a year-on-year increase of 3.5%. Among them, the output of pig feed was 21.26 million tons, a year-on-year increase of 2.9%. On a monthly basis, the pig feed output in February was 9.24 million tons, a month on month increase of – 23.1%. We believe that the month on month decline in February was due to the suspension of the Spring Festival and statistical factors. The overall feed output and demand of the industry are still at a high level, reflecting that the inventory of the pig industry is still relatively loose. Under the slowdown of demand after the festival, the pig price is difficult to be strong in the short term.
We believe that the game of pig sector has entered the stage of 3.0. The classic cobweb model reflects the market logic of price reduction – production reduction – short supply – price increase – production increase – price reduction. From the historical and recent performance of the capital market, the game of the capital market against the pig sector has gradually evolved from the initial “price increase” (stage 1.0) to “production reduction” (stage 2.0) to “price reduction” (stage 3.0). The capital market has digested the expectation of price reduction at the beginning of the year, and formed a certain expectation of production reduction and upward expectation in the future cycle in advance. “The lower the price, the lower the production and the higher the share price”. The logical chain of “cobweb model” of capital market game continues to move forward.
According to our calculation, in history, the average market value of the top pig enterprises listed in the 19-20 pig cycle reached the level of 1200018000 yuan, while the average market value of the top pig enterprises listed in the 15-16 pig cycle reached the level of 8 Tcl Technology Group Corporation(000100) 00 yuan (as shown in the figure below). We believe that the starting background of the 19-20 year pig cycle is relatively special, and the short-term impact of environmental protection and non plague factors on the industry’s production capacity is very obvious. At present, if the pig cycle reverses, it is more driven by the profits of cyclical industries. Referring to the valuation, the pig cycle of 15-16 years (i.e. the average market value of about 8000 yuan) is more comparable. We believe that under the current valuation level, the market has reflected a certain expectation of cycle reversal in advance, but the downward profit promotes the de industrialization of production capacity and the consumption level remains to be continuously observed and verified, and the pig sector will enter a more intense game stage
In terms of trading, considering that the capital market has reflected the expectation of a certain reversal of pig cycle, it is suggested to pay attention to the fluctuation caused by the short-term price reduction and production reduction. From the perspective of recent breeding profits, the breeding profits of self breeding and outsourcing piglets have entered the deep loss range, and the de production capacity will be accelerated. Bargain hunting intervention is a more appropriate strategy. However, this round of pig cycle will return to the Epic Cycle of 19 years, which does not have the external environment of environmental protection and non plague impact on production capacity. It is suggested to maintain rational expectations.
In terms of broilers, we believe that the supply and demand fundamentals of yellow feather chicken will promote the market cycle upward. 1) On the supply side, the long-term breeding loss in the early stage makes the industry’s production capacity obvious. The Chinese broiler association has been in a low position for four years. We believe that the overall production of yellow feather broilers in 22 years will be at a low level in recent years. 2) On the demand side, as the market of live pigs and other animal proteins bottoms out, the substitution squeeze of yellow feather broiler demand will gradually ease and the margin will be better. In addition, the consumption of live poultry suppressed by the epidemic has been fully digested in the past two years, with marginal improvement. The Yellow Feather Broiler sector is expected to usher in a business cycle. Pay attention to Jiangsu Lihua Animal Husbandry Co.Ltd(300761) , Hunan Xiangjia Animal Husbandry Company Limited(002982) , Wens Foodstuff Group Co.Ltd(300498) and other related subjects. In terms of industrial chain integration, we believe that head breeding enterprises extend to downstream slaughtering and processing, food manufacturing and even terminal sales by virtue of their advantages of upstream integration and large-scale, with continuous enrichment of business and continuous improvement of value. Head breeding enterprises are expected to rely on their core advantages to continuously improve their competitiveness and open the performance growth curve.
Highlights: China’s leading large-scale aquaculture [ Muyuan Foods Co.Ltd(002714) ] with obvious cost advantages, new forces of large-scale aquaculture [ Fujian Aonong Biological Technology Group Incorporation Limited(603363) ] with capacity advantages and expansion potential, [ New Hope Liuhe Co.Ltd(000876) ] and [ Fujian Sunner Development Co.Ltd(002299) ] with rapid progress in industrial chain integration.
Planting industry: the seed industry has ushered in a historic opportunity of “three-phase superposition”. During the policy period, on February 11, the State Council issued the “14th five year plan” to promote agricultural and rural modernization. In the chapter “promoting innovation driven development”, it once again emphasized the revitalization of the seed industry – strengthening the protection of germplasm resources, carrying out breeding innovation, strengthening the construction of seed industry base and strengthening the supervision of seed industry market. During the industrial period, bulk grain prices remained high, farmers’ willingness to grow grain increased, and corn and rice seed stocks, supply and demand were optimized, promoting the prosperity of the seed industry.
The technical period is 22 years, and biological breeding is expected to be popularized. It is expected that the biological breeding promotion plan in the near future is expected to be clear: 1) the low version of the plan only involves the promotion in Inner Mongolia and Yunnan; 2) On the basis of the low version, the medium version also popularizes the main corn producing areas in Northeast China; 3) The higher version will be fully released. We believe that considering the national determination to promote the revitalization of the seed industry and the current actual situation of planting, there is a high probability that the Chinese version will be finally launched.
In the medium and long term, we are firmly optimistic about the prospects of the national seed industry and the improvement of the fundamentals of relevant seed enterprises. Under the banner of seed industry revitalization, the iteration and reconstruction of the industry are constantly implemented from top to bottom, which is highly deterministic. “Iteration” refers to the iteration of biological breeding technology. In January, relevant policies on transgene and gene editing were implemented to support the efficient approval of relevant varieties and show the determination and strength of the policy. “Reshaping” is the reshaping of the industry pattern. At the national conference to promote the work of supporting excellence of seed enterprises, it was once again emphasized that “we should improve and strengthen a number of seed industry leading enterprises with integrated innovation ability and adapt to market demand, and create the backbone force for the revitalization of seed industry”. The leading seed enterprises with scientific research advantages will become more and more prominent. “Top down” refers to the implementation of policies, systems, supervision and law enforcement under the banner of seed industry revitalization. The overall industry fundamentals will be better and better.
In terms of trading, we believe that although there is a time cycle for the achievement of the industry performance, the revitalization of the seed industry is sustained and certain. The cashing cycle will inevitably lead to the settlement of “impetuous” funds and fluctuations, but it also brings opportunities for bargain hunting allocation to “long-term” funds. Retreat from the “floating foam” with high short-term expectations, and with the style suppression coming to an end, there will be better trading opportunities.
Key recommendation: seed industry leader [ Yuan Longping High-Tech Agriculture Co.Ltd(000998) ] with genetically modified trait reserve, and [ Beijing Dabeinong Technology Group Co.Ltd(002385) ] with leading genetically modified technology and multiple businesses.
Pet industry: pet industry is a high-quality track catering to social development and consumption trend. According to the white paper on China’s pet industry, China’s pet industry has a market scale of 100 billion, with a compound annual growth rate of nearly 20%. At present, overseas giants occupy a high share of China’s pet food and medical market segments. We believe that the branding of domestic OEM enterprises will continue to accelerate, and have comparative advantages in understanding and deepening Chinese traditional and modern channels. The pet industry will usher in opportunities for domestic substitution, and we will continue to follow up and pay attention. Key recommendation: China’s pet food industry leader [ Yantai China Pet Foods Co.Ltd(002891) ].
Grain and oil industry: affected by the Shenzhen Agricultural Products Group Co.Ltd(000061) cycle, the disturbance of global supply chain under the epidemic and other factors, the prices of soybean and other oilseeds have risen, the cost side pressure of grain and oil enterprises has become prominent, and the squeezed profits have declined significantly. We believe that the performance of grain and oil enterprises is expected to boost with the marginal improvement of the pressure on the cost side – the future Shenzhen Agricultural Products Group Co.Ltd(000061) cycle and the recovery of consumption after the easing of the epidemic on the demand side. Focus on integrated supply chain management and operation of leading enterprises.
Key recommendation: grain and oil leader [ Yihai Kerry Arawana Holdings Co.Ltd(300999) ], which is expected to develop in the overall kitchen business.
Risk tip: the economic recovery is less than expected, the epidemic situation, etc
