When can the strongest pig cycle be reversed? The market is divided: optimists believe that China's pig prices have recovered significantly since April, the share prices of some breeding listed companies have been reflected, and the inflection point of the cycle is coming; The cautious faction said that the grain price pushed up the breeding cost, the capacity removal has not been completed, the supply is abundant, and the demand is weak. The situation of large losses of pig enterprises will continue, and the industry will still be in the bottom grinding period for a long time.
There is also a consensus between the two sides that pig breeding is one of the industries with the most obvious cycle attribute. It has experienced great ups and downs. Opening a new cycle is a high probability event, and the market is waiting for the reversal of the pig cycle.
Recently, the reporter of securities times · e company conducted in-depth interviews with leading listed companies, small and medium-sized farmers, industry experts and other participants in the pig breeding industry, trying to show the real picture before the new upward cycle and help investors judge the process of the pig cycle.
retail investors out in large numbers
Small and medium-sized retail pig farmers have weak financial and technical strength, incomplete information and low epidemic prevention level, so it is difficult to carry a complete pig cycle. The advantage of pig breeding retail investors is that "the boat is small and easy to turn around". In the process of low ebb and flow of each cycle, they can respond quickly to realize self elimination or admit losses. Waiting for the confirmation of the upward direction of the new round of pig cycle, retail farmers will quickly join in and catch up with the market.
Therefore, whether individual pig farmers have completed the capacity removal can be used as one of the judgment bases for whether the pig cycle is at the bottom.
Li Hua (a pseudonym), a farmer in Yuanyang County, Xinxiang, Henan Province, is still insisting, but his mood is not high. "The pig price has been bad in the past two years. I have lost a lot of money. Now I can feed it casually." Li Hua disagreed with the topic of the recovery of pig prices mentioned by the reporter of the securities times · e company. "Last year, it also rose for a wave, but it didn't take long to fall again, and it was compensated horizontally and vertically. Now, even if the price rises, no one is willing to raise pigs."
At the peak of 2020, Li Hua, a small farm, fattened four or five hundred pigs. At that time, the pig price was close to 20 yuan / kg, and the average profit per head was more than 2000 yuan. At present, there are only dozens of fat pigs left, and less than 10 sows can be used for subsequent reproduction and increase production, which makes the farm seem empty.
In the surrounding villages and towns, there are not a few farmers like Li Hua who have greatly reduced the breeding scale and even abandoned the breeding. Li Hua said that at present, the total number of pigs raised in the village is no more than 300. New farmers in the high price period of the last wave quit last year, and only a few old farmers raised a few pigs to maintain.
The maintenance method is "poor feeding" to minimize the high breeding cost. "In the past two years, the prices of corn and soybean meal have become higher and higher, and pigs can't sell." Taking advantage of the small rise before the May Day holiday, Li Hua hurriedly sold three fat pigs at home. "Now I don't dare to raise too much. If I can sell about 200 kilograms, the cost of feeding pigs is too high. The bigger the pig, the more money it loses." Li Hua said.
In order to save costs, Li Hua's pig feed has long been afraid to use feed with more balanced and abundant nutrition. After the rise of soybean meal price, relatively cheap substitutes such as rapeseed meal have also been used. Even so, the financial pressure of breeding retail investors is still large, "can only use the poor feeding method".
Li Hua has taken aim at other ways. Recently, her wechat circle of friends are all advertisements about tea industry and health products, which is very different from the previous situation mainly about pig market information.
The reasons why many small and medium-sized farmers choose to go to production capacity are not only the high cost and low price, but also the African swine fever that is difficult to guard against. Even if washed frequently, the breeding environment of retail investors will have obvious peculiar smell, which is very different from the pig farms under the strict epidemic prevention of large-scale enterprises, which is the main reason why retail investors are more vulnerable to the impact of African swine fever.
"This disease (African swine fever) can be cured with myrrh and can't be prevented. Once pigs are infected, they can't want it, and the previous investment has to be wasted." Li Hua lamented that since November last year, dozens of pigs in his family have died of non plague, and the surrounding farmers are also facing the attack of the epidemic at any time.
"Pig breeding continues to suffer losses. Small and medium-sized farms have to withdraw from the market under the pressure of cash flow. The withdrawal proportion of free range farmers in some parts of East China has reached 60% - 70%." In the interview, some insiders said that each round of pig cycle is an industry reshuffle, and the competitive advantage of leading enterprises is gradually emerging.
pig enterprises continue to suffer deep losses
Unlike individual farmers, large-scale pig enterprises are extremely strict in epidemic prevention. Taking Muyuan Foods Co.Ltd(002714) as an example, it is required to fast pork one week before entering the pig farm, isolate for three days and take a bath for more than ten times. The company also stressed that "no one will have an exception".
In the first ten days of May, Nanyang experienced a wave of backward spring cold. The outdoor temperature was not high, but the pig house maintained a constant temperature of 25 degrees. According to the requirements of Muyuan Foods Co.Ltd(002714) , you can only enter the plant after staying at the special isolation point for three days. The first procedure for entering the isolation point is non plague sampling and detection. The biosafety officer will wipe and sample the whole body including hair, face, hands, feet and other parts in detail. The next self disinfection procedure can be carried out only after the test result is negative. Self disinfection refers to repeated bathing in a short time. From entering the isolation point to finally walking out of the area, you need to take a bath more than 10 times. After entering the breeding area, pig house unit and leaving the unit, take a bath respectively, and each time it is required to be more than 10 minutes.
Muyuan Foods Co.Ltd(002714) also installed a fresh air system at the air inlet of the pig house and an accurate ventilation system inside the pig house to isolate most viruses. The management of feed, vehicles and materials is also extremely strict, so as to ensure the relative isolation between inside and outside, clean and disinfect, and implement the supervision and inspection system.
Muyuan Foods Co.Ltd(002714) relevant person in charge told the reporter of securities times · e company, "there is no particularly effective vaccine and drug for African swine fever at present. The stability of pig production can only be guaranteed through strict isolation and breeding. The company has also taken the initiative to improve the level of biosafety prevention and control in recent years." According to the reporter's understanding, the situation of other large-scale pig enterprises is similar, and strict epidemic prevention measures are taken to ensure the breeding safety.
African swine fever was one of the important driving factors for the upward trend of the last super pig cycle. At that time, it had a great impact on the production capacity of the industry and significantly raised the price of pork. Large scale breeding enterprises have actively improved the level of epidemic prevention, and the results of column filling have begun to appear. The industrial production capacity has been released, and they will make a lot of money in 2019 and 2020. However, with supply exceeding demand, the market price of live pigs in China continued to decline from 2021 to the first quarter of this year, breaking through the cost line all the way, and large-scale pig enterprises began to fall into a state of huge losses.
In 2021, among the 10 listed companies in Shenwan industry pig breeding sector, 6 listed pig enterprises had a total loss of nearly 35 billion yuan.
In the first quarter of this year, Muyuan Foods Co.Ltd(002714) also lost 5.2 billion yuan, which was still profitable last year. The 10 listed pig enterprises in the sector had a total loss of more than 15 billion yuan. The industry has entered the middle of winter.
In the second quarter of this year, the situation began to change. In April, pig prices rose slightly compared with the first quarter; In May, the market price of live pigs came to about 15 yuan / kg. The market is generally optimistic about the price of pigs in the second half of the year, the enthusiasm for column filling has increased, and the prices of piglets and breeding pigs have increased.
This time, is the inflection point of the pig cycle approaching?
pig cycle continuous bottom grinding
For cyclical industries, the degree of capacity deregulation and supply side contraction is an important standard to measure the progress of cycle evolution. Specific to the pig breeding industry, the change in the number of sows that can be bred is directly related to the production capacity of the industry.
In June 2021, the number of fertile sows in China reached the highest level of 45.64 million in recent years, and then began to decline. In March this year, the number of fertile sows in China was 41.85 million, a month on month decrease of 1.9% and a year-on-year decrease of 7.86%, which is close to the basic population of 41 million.
"The stock of fertile sows will significantly affect the supply of pigs after 10 months, so the potential supply of pigs has reached a peak in April 2022. In May, the market supply pressure may usher in marginal improvement." Bi Hui, senior Shenzhen Agricultural Products Group Co.Ltd(000061) researcher of Baocheng futures Finance Research Institute, analyzed that the stock of fertile sows has been close to the basic stock, indicating that the de production of parental generation has been basically completed, and the quarter on quarter decline and year-on-year slight increase also indicate that the supply pressure of commercial pigs in the next production cycle will slow down significantly.
Bi Hui believes that by the end of the second quarter, the stock of fertile sows is expected to return to the normal holding range, and the de production capacity is nearing the end at this stage.
"The core of the cycle reversal is that the production capacity of pigs continues to be reduced during the period of continuous price downturn, and the relationship between market supply and demand has fundamentally changed. At the same time, according to historical experience, pig prices also fluctuate at the bottom of the cycle and touch the bottom again." Muyuan Foods Co.Ltd(002714) relevant person in charge told the reporter of securities times · e company that although from the data of the Ministry of agriculture and rural areas, the number of fertile sows on hand is significantly reduced at present, it is still slightly higher than the low number of fertile sows in previous years. The number of fertile sows on hand of the company changes slightly and is relatively stable as a whole.
Wens Foodstuff Group Co.Ltd(300498) relevant person in charge said in an interview with reporters that even if the stock data reaches the basic balance point of supply and demand, it is necessary to deduce the pregnancy and production of sows back to about 10 months from piglet breeding, during which the output of pigs will gradually decline.
From the previous four longer pig cycles, it takes more than a year for the bottom of pig prices to fluctuate and continue to reduce the production capacity of pig breeding.
"At present, the market is still at the bottom of the cycle. From the second half of last year to the first quarter of this year, it has shown a 'long l' trend as a whole, which is a typical bottom form of a large cycle." Fujian Aonong Biological Technology Group Incorporation Limited(603363) relevant person in charge said when analyzing the trend of pig cycle to the reporter of securities times · e company, "From the perspective of the large cycle, the fluctuation of pig price is related to the data change trend of breeding sows, which is finally linked to the change of market supply and demand and the fluctuation of real production capacity. The upcoming new round of upward cycle is not fundamentally different from the previous rounds. It is the impact of market supply and demand that drives the evolution of the cycle, but there will be more disturbing factors."
inflection point or delay to
Earlier, the share prices of listed pig breeding companies showed some performance. Some stocks rose greatly, but they have been suppressed recently.
"At present, the market is looking forward to the cycle reversal, but in fact, it takes more than a year for the bottom of production capacity to go." Wens Foodstuff Group Co.Ltd(300498) relevant person in charge believes that the time of depigmentation in this round of pig cycle may be further extended. It analyzes many reasons: first, the recent ups and downs of pork prices have affected the mentality of farmers, and the speed of capacity removal has slowed down periodically; Second, the industry concentration is improved. Large enterprises are empowered by the capital market and their comprehensive strength is improved. What they pursue is not short-term profits. Even if they lose money in the low price period, enterprises with financial strength must maintain a certain capacity, and the capacity will not shrink sharply in an instant.
Under the influence of both non plague and covid-19 epidemics, the current consumption side of pigs is weak, there is a situation of oversupply in the market, coupled with the high price of feed, there is a serious scissors gap between the cost and the selling price, and the industry is still in a very difficult period. The above-mentioned people believe that at present, this situation will not be reversed until at least the third quarter. Pessimistically, it will not be possible to reverse the cycle until the fourth quarter.
Muyuan Foods Co.Ltd(002714) the above person in charge also said that although some industries believe that the second quarter will be the inflection point of the pig market, the company is still cautious in judging the medium and long cycle. In the short term, the company believes that the market will improve in the second half of the year.
Fujian Aonong Biological Technology Group Incorporation Limited(603363) relevant person in charge predicted that the pig price will gradually rise in the third quarter of this year. It further explained that the pig market has accumulated the results of capacity removal since last year, and the stock is bound to continue to decrease. This stock change corresponds to the birth of piglets and then fattening and marketing, which has begun to have an impact on the subsequent market supply relationship and pig price trend. When the number of sows on hand is reduced by more than 10%, the corresponding slaughter price of fat pigs will have a relatively obvious performance.
Is China's pig market near the inflection point Tangrenshen Group Co.Ltd(002567) relevant people judged that the rate was probably low in March. This year, the overall upward trend was maintained, and it remained high in the fourth quarter.
Bi Hui judged that with the gradual improvement of the supply and demand pattern in the current pig market, the spot price may continue to rebound at the bottom and the price focus will move up. However, when the absolute ownership of fertile sows and pigs is not low, the overall rebound height will be limited. At the same time, from the price increase range of piglets and sows, the price increase of piglets is significantly higher than that of sows, which also shows that the market is more optimistic about the second half of the year.
New Hope Liuhe Co.Ltd(000876) replied to the reporter that the pig price is determined by supply and demand. At present, the number of pigs sold is relatively stable and abundant. In the first quarter, the number of pigs sold reached 195 million, 14% higher than that in the same period last year. The last 1-2 months of each year are the off-season of demand throughout the year, while the demand gradually warms up in April, which will have a strong pulling effect on pig prices. The recent rise in pig prices is more driven by the demand side. The future trend depends on the specific situation of the supply side.
New Hope Liuhe Co.Ltd(000876) it is observed that the optimization and improvement of sows are also being carried out simultaneously, the key production indicators are gradually improving, and some market participants are supplementing high-performance backup sows while eliminating inefficient sows.
Therefore, although it is in the stage of continuous decline of fertile sows, the subsequent decline of pig supply needs to be further observed due to the improvement of pig herd structure and production performance.
New Hope Liuhe Co.Ltd(000876) believes that the elimination of fertile sows may lead to a sustainable decline in the supply of pigs in the future, but the current slaughter volume of pigs is still relatively stable and abundant. In addition, due to the impact of the improvement of pig herd structure and production performance, it is not possible to make a simple judgment on whether the "inflection point" can be declared.
high cost or accelerated cycle
In the continuous bottoming stage of the pig cycle, grain prices rushed to an all-time high, increasing the cost pressure on the breeding side, while the demand on the consumer side was weak, prices continued to decline, and enterprises and farmers were hit from top to bottom. But objectively speaking, the existence of "scissors difference" between cost and price may accelerate the transformation process of pig cycle.
Some people believe that if the industry turns to recovery, the transmission of high food price costs to the terminal will become smooth, which will promote the rise of pork prices.
Since the outbreak of covid-19 pneumonia, the global grain price index, the most important indicator reflecting food prices, has repeatedly reached new highs. This year, under the influence of geographical conflict factors, there has been another short-term surge. Data show that from the beginning of 2020 to March 2022, the global grain price index rose by more than 65% to 170.1, the highest level since the index was recorded. In March 2022, the average purchase price of corn was 2865 yuan / ton, an increase of 1.8% month on month, 285 yuan / ton higher than the historical high in August 2014 (2580 yuan / ton).
Driven by high food prices, feed enterprises have frequently raised product prices in the past year, and the high feed prices have undoubtedly exacerbated the cost pressure on the pig breeding end, because the cost of pig feed accounts for 50% ~ 70% of the total cost of pig breeding. Under normal circumstances, in the production of pig feed, protein feed is mainly provided by soybean meal, accounting for 25%; Energy feed is mainly provided by corn, accounting for 65%.
With regard to the current high cost situation of China's pig breeding industry, Fujian Aonong Biological Technology Group Incorporation Limited(603363) relevant person in charge told the reporter of securities times · e company that on the whole, the problem of rising grain prices pushing up breeding costs is obvious, and it will also accelerate the continuous de industrialization of production capacity.
"At present, the pig market is in the stage of oversupply, but the grain price has risen to a high level, and the breeding enterprises are under great pressure under the high cost. However, if the pig market enters the situation of short supply and the grain price remains high, the price transmission mechanism will be more obvious." As for the impact of high grain price on the breeding end, Wens Foodstuff Group Co.Ltd(300498) relevant person in charge believes that due to the high grain price, the current cost per kilogram of pork is about 1 yuan higher than that before, and this part of the cost may eventually be transferred to the downstream pig price.
"No matter which production link plays a role, as long as it affects the cost or efficiency, if the pig raising sector can't make money for a long time, it will reduce production and eventually deduce the increase of pig price. In the long run, if the raw material price continues to be maintained at a high level, it will form a bottom for the pig breeding cost line and long-term pig price." For the long-term impact of high grain prices on the pig breeding industry, Fujian Aonong Biological Technology Group Incorporation Limited(603363) the above person in charge analyzed that the upcoming cycle will go up, and the raw material price will certainly increase compared with the previous round, which will eventually be reflected in the pig price, and the cost of non plague prevention and control will also be reflected in the future price.
However, Ma Liyuan, a pig analyst at Zhuo Chuang information, believes that the composition of pig breeding costs is diverse, and high costs may not bring high pig prices and high profits. The fundamental factor determining pig prices is the market supply and demand pattern, cost determines price support, and cost and pig prices jointly determine the profit level.
Tangrenshen Group Co.Ltd(002567) the relevant person in charge said that the pig price is mainly affected by the relationship between supply and demand in the short term, not by the cost. In the long term, it will be affected by inflation and various cost rising factors, and the bottom of the cycle will gradually rise. The profitability will be subject to the rise of grain prices in the short term, and will not be affected by grain prices in the long run.
Since April, pig prices have warmed up, grain prices have fallen, and the breeding pressure has been relieved temporarily. After withdrawing from the first level warning range of excessive decline in April, according to the latest data of the national development and Reform Commission, the national average pig grain price ratio was 5.35:1 in the week from May 9 to 13, which was between 5:1-6:1 for more than three consecutive weeks, rising to the second level warning range of excessive decline set in the plan for improving the regulation mechanism of government pork reserves and stabilizing the supply and price of pork market.
industry pattern changes
Each round of pig cycle will have an impact on the industry pattern. The most obvious performance of this round is the significant increase of industry concentration and the embodiment of the competitive advantage of leading enterprises. The improvement of the ability of leading enterprises to cross the cycle is also deeply affecting the cycle promotion, which is an important factor leading to the long duration of the bottom cycle of this round.
Public information shows that the proportion of the top 20 pig enterprises in the total marketing volume of the country has increased from 9.76% in 2018 to 20.3% in 2021, and the concentration of pig breeding industry has increased significantly. According to the data of animal husbandry and Veterinary Research Institute, in 2021, the proportion of farmers with less than 500 heads per year decreased to 40%, and large-scale farms (more than 500 heads per year) accounted for 60%.
According to Yongyi consulting data, the number of fertile sows in the sample points decreased by 0.13% month on month in April, but the group increased by 3.8% month on month. In April, the number of fertile sows in the top 30 pig enterprises was 9.405 million, accounting for 22.5% of the total number of fertile sows in China, and the concentration was 0.9 percentage points higher than that at the end of 2021.
Under the pressure of breeding losses and continuous cash flow, small and medium-sized farms continue to be de diversified, but the group farms with strong financial strength remain stable, which also shows that the breeding industry is further concentrating on leading enterprises. Bi Hui said that in the context of national capacity reduction, the capacity of most leading enterprises remained stable or even rebounded slightly, and there is still room for further improvement.
Fujian Aonong Biological Technology Group Incorporation Limited(603363) relevant person in charge also believes that the competitive advantage of the leader is stronger and the capacity accumulation will continue to be reflected. The possible high cost pressure in the new cycle will further test the business and technical level of breeding enterprises. "The goal of large-scale enterprises is not to make money in a single cycle, but to pay attention to the long-term average profit. The pig breeding industry has a large investment and needs to consume more capital. Under the new cycle, enterprises should see how to make effective use of the formed production capacity and achieve a relatively better state of cost." He said.
The downstream pattern is also changing. At present, under the influence of the double epidemic, while the cost of epidemic prevention in China's pig breeding industry is increasing, the terminal demand is also facing phased constraints, and the production, logistics and sales have ushered in a new situation to varying degrees. Industry insiders believe that with the continuous implementation of the policy of "changing from pig to meat", the downstream of the breeding end is undergoing the process of reshaping the production capacity distribution of slaughtering enterprises and accelerating the integrated layout of the industrial chain.
"China's pig market has continued the supply pattern of the North-South pig transfer for many years. Under the guidance of the policy of transferring pigs to meat, it has put forward higher requirements for the local pig slaughtering capacity, which has undoubtedly changed the production and distribution pattern of the slaughtering industry, and the downstream demand has gradually adjusted from hot fresh meat to ice fresh meat." A person from the slaughtering industry in Henan who declined to be named told the reporter of the securities times · e company that residents' pork consumption habits decided to slaughter raw pigs closer to the place of consumption. Therefore, before, the main sales area had strong slaughtering capacity. Under the policy of "changing pigs to meat", the demand for slaughtering capacity in pig production areas increased, while the demand for breeding capacity in sales areas was more urgent. This regional market pattern change is gradually going on, and breeding and slaughtering enterprises are also promoting the development of the whole industrial chain.
At the terminal, with the rise of prefabricated dishes and other terminal consumption forms, the demand mode of meat food has changed. However, Bi Hui believes that the consumption habits of Chinese residents are still dominated by fresh meat, and the rise of prefabricated vegetables has a limited pulling effect on the demand for pork.
Wens Foodstuff Group Co.Ltd(300498) relevant person in charge also said that the emergence of prefabricated dishes is derived from social demand. Whether the specific demand can increase or not depends on the living habits and dietary structure of Chinese consumers.
Fujian Aonong Biological Technology Group Incorporation Limited(603363) relevant person in charge also believes that the market of prefabricated vegetables needs to be observed. "The consumption of prefabricated vegetables needs to consider which kind of pork consumption to replace, and also observe whether this substitution brings equal consumption or growth consumption." "If it is equal consumption, the impact on pig demand is small," the person said
In this industry, when will the inflection point of the pig cycle come? rub one's eyes and wait.
