Key investment points
Market review this week
The agriculture, forestry, animal husbandry and fishery sector underperformed the market. Last week (from May 16, 2022 to May 20, 2022), the CSI 300 index rose by 2.23%, and the Shenwan agriculture, forestry, animal husbandry and fishery index rose by 1.65% in the same period, 0.58 percentage points lower than the CSI 300 index, ranking 16th among the 28 Shenwan industries. From the sub sectors of agriculture, forestry, animal husbandry and fishery, the Shenzhen Agricultural Products Group Co.Ltd(000061) processing / feed / planting / livestock and poultry breeding / animal health care / fishery sector rose or fell by 1.99%, – 1.07%, 8.21%, 0.09%, 3.90% and 4.57% respectively last week.
Core ideas of this week
[pig breeding] time changes space
According to the statistics of Boya Hexun, the average price of pigs nationwide this week was 15.56 yuan / kg, up 3.62% month on month and down 16.55% year-on-year; The loss of self breeding was 175.24 yuan / head, with a month on month decrease of 25.99% and a year-on-year decrease of 200.57%; The profit from outsourcing breeding was 31.06 yuan / head, with a month on month increase of 193.81% and a year-on-year increase of 103.51%.
Short term pig price or shock adjustment. The recent rise in pig prices, on the one hand, is due to the reduction in the number of newborn healthy piglets at the beginning of the year, which corresponds to the reduction in the number of pigs available for slaughter at present. On the other hand, the transportation is blocked due to the epidemic prevention and control, and the acceptance of some sealed families for high-priced living materials is improved. In addition, the transfer of pigs from other provinces has been prohibited in Guangdong since May 1, and the rise in local pig prices has led to the rise of pig prices in surrounding provinces. However, terminal consumption has not been significantly boosted for the time being. It is expected that the rising momentum will slow down after the pig price crosses the industry cost line.
The current round of pig price rise may peak at the end of the third quarter and fall slightly in the fourth quarter. On the one hand, since last winter, the overall production performance of sows in the industry has been optimized, and the survival rate of piglets has increased after the temperature rise. According to Boya Hexun statistics, the supply of weaned piglets increased by 2.88% month on month in April. It is expected that the supply of weaned piglets in May will not change much, and the increase in the number of newborn piglets in recent months corresponds to the growth of pig slaughter in the fourth quarter of this year. On the other hand, the price of feed raw materials fell, coupled with the market’s optimistic about the market price in autumn and winter, the farmers’ enthusiasm to supplement the market increased, and some retail investors began to increase the weight of the market, which will further increase the pressure on the supply of pork in the fourth quarter.
How to view the game of the market? What the market is worried about is that the warming of breeding in the second half of this year will stimulate the supplement of breeding. If the number of fertile sows increases continuously month on month, it will lower the pig price in the second half of next year. However, we believe that according to the current higher than expected pulse of pig price, the year-on-year decline of sow material of nearly 30% in the first quarter, and the year-on-year decline of more than 30% in the number of non compulsory immunization vaccine batches such as ring and pseudo rabies, the de industrialization range of the actual production capacity of the industry may exceed the level of 8.4%. Secondly, the current pig price is still lower than the cost line of most farmers, while the international geopolitical conflict is still ongoing. The prices of feed raw materials such as corn and soybean meal may rise again in the second half of the year, exacerbating breeding losses. The deregulation of industrial production capacity is expected to start again, and a new business cycle may start in the second quarter of next year.
[white feather broiler] upstream supply is being accelerated and depolymerized
According to the monitoring of Boya Hexun, the average price of wool chicken in the main production area this week was 9.05 yuan / kg, up 0.11% month on month and down 1.52% year-on-year; The comprehensive selling price of chicken products was 10.23 yuan / kg, down 0.68% month on month; The price of chicken seedlings was 2.57 yuan / feather, down 0.77% month on month.
We believe that in late May, the supply of meat and chicken in the market gradually increased, while the delivery of chicken products was slow. The epidemic damaged the main consumption channels, and chicken consumption continued to be weak. It is expected that the price of chicken will remain weak. Downstream aquaculture profits decline or even loss, or force the upstream production capacity to be cleared. In addition, since the beginning of 2022, the outbreak of avian influenza in the United States has spread to 24 states and 92 counties in the United States, resulting in the slaughter of more than 27 million birds, and there has been no significant mitigation trend. At present, China’s dependence on the import of white feather broiler breeds is still high. In 2021, 70% of white feather broilers were imported from overseas, of which 57% were imported from the United States. The outbreak of avian influenza in the United States may exacerbate the supply risk of Chinese breeding chickens. With the slowdown of introduction, the impact of the dual factors of forced moulting in 2021, and the weakening impact of the epidemic combined with the increased demand of consumption stimulus policies, China’s poultry prices are expected to gradually rise from the current bear market, and the reversal of industry prosperity is expected to exceed expectations.
[planting chain] the global food supply is tightening, and the planting chain continues to boom
As of May 20, 2022, the international CBOT prices of wheat, corn and soybean were 1169, 779 and 1705 cents / bushel respectively, up 54.19%, 32.16% and 25.80% respectively compared with the beginning of the year; The average spot prices of wheat, corn and soybean in China were 3247, 2908 and 5793 yuan / ton respectively, up 14.12%, 6.28% and 10.94% respectively compared with the beginning of the year.
Tight supply + trade restrictions + rising costs, international food prices may remain strong shocks.
(1) the global food supply is tightening. On the one hand, the conflict between Russia and Ukraine has affected the new season production and export of wheat and corn in Ukraine; On the other hand, India, South America, Australia and other places suffered from drought, floods and other adverse weather, affecting food production.
(2) trade restrictions. On May 13, the Indian government issued a notice that it would implement the wheat export ban in order to ensure China’s wheat supply and maintain the stability of grain prices. Previously, India’s wheat prices approached the highest level in 10 years due to the expected reduction of Chinese wheat production and the acquisition of traders. The conflict between Russia and Ukraine has led to the rise of food protectionism. The passive adoption of food export control will affect the global food trade and further push up Shenzhen Agricultural Products Group Co.Ltd(000061) prices.
(3) rising costs. The rise of energy prices such as crude oil and natural gas leads to the rise of the cost of agricultural materials such as chemical fertilizers and pesticides in the downstream, and also leads to the rise of oil cost of transportation, which has a positive impact on food prices.
What is the future trend of China’s grain prices?
(1) the price of wheat may stabilize, and the price of high-quality wheat may rise. China’s wheat is mainly self-sufficient with low import dependence, which is less affected by the rise in international wheat prices. However, due to the delayed sowing date of winter wheat last year and the interference of La Nina climate in the second quarter of this year, it is expected that the unit yield and quality of wheat this year are lower than those in previous years, and the price of high-quality wheat may rise.
(2) the gap between corn supply and demand is still, and the boom may continue. Affected by the epidemic, the progress of spring farming in Northeast China has increased the planting of soybeans and reduced the sowing area of corn. The reduction of corn production in Ukraine may affect the export to China. The recovery of downstream breeding stimulates the recovery of feed demand. It is expected that China’s corn price will remain high and volatile.
(3) the import cost of soybean rises, and the price of soybean meal may fluctuate strongly. After April, China’s soybean arrivals and reserve auctions led to a significant recovery in soybean and soybean meal inventories. It is expected that the arrivals will gradually decline from June to July, and China’s soybean meal may change to tight supply in the third quarter. The rise of global wheat prices has boosted the price comparison and supported the continuous rise of us bean prices, resulting in the rising cost of imported soybeans in China. The crushing losses of oil plants combined with the improvement of feed demand in the second half of the year may support the rise of Chinese soybean meal prices again.
Investment advice
[pig breeding] we believe that the listed pig enterprises will carry out the impairment of productive biological assets and withdraw the provision for inventory falling price in 2022q1, laying the foundation for the subsequent improvement of operation. At the same time, the recent correction of the sector has fully released the risk, and the sector has reached a position worthy of investment. In the cold winter of breeding, the leaders Muyuan Foods Co.Ltd(002714) , Wens Foodstuff Group Co.Ltd(300498) , Wens Foodstuff Group Co.Ltd(300498) , Hunan New Wellful Co.Ltd(600975) , which are “safe in the capital chain” and “predictable in the market”, and the second tier dark horse Hunan New Wellful Co.Ltd(600975) , which has both safety margin and growth, are recommended.
[white feather broiler] the deep loss in the downstream suppresses the enthusiasm of making up the hurdle, or forces the breeding chicken farm to take the initiative to reduce production capacity. The outbreak of avian influenza in the United States may affect the import of white feather chicken provenance, aggravate the risk of breeding chicken supply, and the white feather chicken cycle may start in preparation. It is recommended that enterprises focusing on the layout of the whole industrial chain business and the elastic target of the upstream main chicken seedling sales business.
[dynamic insurance] the sector has fallen to a reasonable range dragged down by the pig price. At present, the pig price rises or improves the immunity enthusiasm of the downstream. The performance of dynamic insurance enterprises is expected to improve quarter on quarter. The sector is expected to be repaired by valuation. It is suggested to lay out at a low level. It is recommended to focus on Pulike Biological Engineering Inc(603566) , which has obvious advantages in subunit vaccine research and development, and industry leaders with rich product reserves.
[planting chain] focus on the subject that directly benefits from the rise of grain prices; The rise of grain prices drives the prosperity of seed industry. It is recommended to pay attention to Beijing Dabeinong Technology Group Co.Ltd(002385) (rich reserves of genetically modified traits) and Yuan Longping High-Tech Agriculture Co.Ltd(000998) (the leader of corn and rice seeds).
Risk tips
Covid-19 epidemic spread risk, international situation change risk, policy implementation less than expected risk, etc.
