Hubei is a representative area of large-scale pig breeding. Hubei is a large pig production and marketing province in China. In the first half of 2021, the number of pigs sold was 22.0196 million, accounting for 6.5% of the total number of pigs sold in China, ranking fifth in China. Hubei’s pig breeding industry has a high degree of scale, and mainly focuses on breeding pigs (sows), and a large number of piglets are exported to Shandong, Henan and other provinces; The proportion of free range farmers is relatively low, and they mostly cooperate with enterprises, mainly family farms with more than 1000 heads. Therefore, this round of research is highly representative in reflecting the business status and mentality of large-scale breeding enterprises.
In 2021, Hubei fertile sows will be phased out, but recently large-scale farms have successively replenished their production capacity. From May to August 2021, the stock of sows in Hubei Province was greatly reduced. The interviewed enterprises reported that the elimination rate of sows ranged from 20% to 50%. Therefore, the market is expected to have a phased tight supply of commercial pigs in the third quarter of this year, and the expected high point is 18 yuan to 19 yuan / kg. However, Hubei is a major breeding pig breeding province. At present, the supply of sows in the province is still abundant and the replacement cost is low. After October, the breeding end has replenished the production capacity of backup sows one after another.
There is little difference in marketing costs among breeding entities, and the financial situation of enterprises with 10000 sows continues to deteriorate. The marketing cost of large-scale farms is concentrated at 15-16 yuan / kg, and very few reach the level of 18 yuan / kg. The overall cost of family farms is about 1-1.5 yuan / kg lower than that of large-scale farms. Farms with more than 10000 sows are facing greater cash flow pressure, especially unlisted large-scale pig raising enterprises, which have single financing means and mainly rely on bank agricultural loans, and their financial situation has seriously deteriorated.
Why do we pay special attention to the growth of enterprises in this cycle? The market has always regarded the pig breeding sector as a cyclical industry with only beta attribute, directly equating the pig price with the valuation level of the industry. However, the core idea that we are optimistic about the aquaculture sector is that in this cycle, aquaculture stocks first show stronger growth characteristics, followed by periodicity. We maintain the judgment that there will be no obvious contradiction between supply and demand in the pig market most of 2022. The approximate rate of pig price continues to fluctuate around 15 yuan / kg, but we do not rule out the unexpected rebound caused by phased tight supply during the period. We believe that some small and medium-sized pig enterprises with poor operation are likely to face the situation of breaking cash flow and being forced to break their arms to survive this year. The order of asset realization of these pig farms / pig enterprises will be “selling fat pigs, selling sows and finally selling pig farms”. When the above situation occurs, it will give the large-scale pig enterprises with greater financial leverage an excellent opportunity to expand against the trend. That is to say, compared with the cycle logic of intense capacity deregulation, we prefer to think that the pig breeding sector may first deduce the industry concentration promotion logic of “big fish eat small fish”, including but not limited to mergers between enterprises, but also the continuous expansion of the company + farmer model.
Finally, from a longer-term perspective, is there only one way to eliminate sows in pig cycle, capacity clearance and cycle reversal? The answer is No. The benchmarking layer breeding industry has gone down from the high stock in 2019, and has not experienced serious over scouring. In the context of high feed cost, only panning and less supplement / only panning and no supplement can complete the capacity removal through the decline of breeding willingness and the increase of empty column rate. This situation may also occur in the pig market.
Investment suggestion: the time point of the worst performance of aquaculture stocks has passed, and the rapid increase of enterprise production capacity will raise the bottom of the valuation of the sector as a whole. If we only focus on the cycle and ignore growth, it will easily lead to the risk of running short. Once again, we emphasize that in this cycle, special attention should be paid to enterprises with both financial stability and growth. It is recommended to actively layout Wens Foodstuff Group Co.Ltd(300498) (continuous improvement of operation, company + breeding community + farmers model to ensure stable growth of production capacity) and Tangrenshen Group Co.Ltd(002567) (whole industry chain operation, excellent performance in various financial indicators), Secondly, focus on COFCO Jiakang (backed by COFCO group, it has the cost advantage of raw feed grain and the rapid expansion of production capacity).
Risk tips: the spread of non plague and other pig diseases has intensified, and feed raw materials have increased sharply; Pig prices fell more than expected.
