Market review this week
Last week (2022 / 1 / 17-2022 / 1 / 23), the CSI 300 index rose by 1.11%, while the agriculture, forestry, animal husbandry and fishery index fell by 3.20% over the same period, underperforming the CSI 300 index by 4.31 percentage points, ranking 22nd among the 28 Shenwan industries.
In terms of sub sectors, the rise and fall of feed / livestock and poultry breeding / planting / animal health / Shenzhen Agricultural Products Group Co.Ltd(000061) processing / fishery sectors last week were 0.14%, – 2.59%, – 4.56%, – 5.23%, – 5.41%, – 12.68% respectively.
Core ideas of this week
[pig breeding] we maintain the view that after the Spring Festival, pig prices will accelerate the decline and production capacity is expected to accelerate the liquidation. The recent rise in pig prices in East China, central China and North China is mainly caused by the price increase of slaughtering enterprises and the impact of rain and snow weather on market transportation. However, the actual market trading volume has not increased significantly, reflecting the general market stock demand. We believe that the short-term pig price may be supported by rainy and snowy weather and pre holiday stock, but the decline in pork consumption after the Spring Festival is certain. The sufficient number of newborn piglets in the second half of last year means that the supply of pigs will increase in a trend in the first quarter of this year. In addition, we observed that the marketing of scale farms slowed down significantly in January, and the marketing of scale farms is bound to accelerate after the Spring Festival, The supply pressure of pigs in the market is not small, so the price of pigs will probably accelerate the decline after the Spring Festival. The month on month decline of piglet material preparation in November and December may indicate that the number of pigs sold in the second quarter has decreased, and the price of pigs may rebound weakly, but there is no basis for a sharp rise.
From the perspective of capacity deregulation, the current number of fertile sows in the industry is still declining. At the press conference of the State Council on January 20, it was disclosed that the number of fertile sows in the country by the end of 2021 was 43.29 million, up from November. However, in fact, the data samples of the Bureau of statistics and the Ministry of agriculture and rural areas are different. If it is completely according to the caliber of the Bureau of statistics, 2021q4 fertile sows decreased by 2.96% month on month, which was greater than the 2.3% decline in 2021q3, indicating that the removal of fertile sows has not slowed down, and the cumulative removal range is still expanding. 11. The rebound of pig prices and the reduction of outsourcing fattening costs in December restrained the elimination of sows to some extent. However, we believe that after the Spring Festival, the pig price fell to the bottom again, and the prices of feed raw materials such as corn and soybean meal remained at a high level. Under the breeding loss, the deregulation of industrial production capacity is bound to accelerate. We may see the elimination of sows with offspring in the industry in the second quarter of this year.
[white feather broiler] before the Spring Festival, the slaughter volume of broilers decreased, especially the social chicken source, which supported the chicken price; However, the Spring Festival holiday is approaching, the slaughtering enterprises are about to stop work, and the inventory of frozen products is not low. The purchase of wool chicken is controlled, and the rising power is insufficient. Under the supply-demand game, the space for the rise and fall of wool chicken price is limited. The price of chicken seedlings is expected to fluctuate and adjust next week.
[animal protection] new progress in research and development of non plague vaccine or heat of catalytic sector. At present, enterprises have submitted the application for emergency evaluation of African classical swine fever genetic engineering subunit vaccine to the Ministry of agriculture and rural areas. There are four evaluation methods for veterinary drugs: general evaluation, priority evaluation, emergency evaluation and filing review. For veterinary drugs required for emergency disposal of sudden major animal diseases, the Ministry of agriculture can start the emergency evaluation method. The evaluation center shall carry out emergency evaluation according to the requirements of the Veterinary Bureau of the Ministry of agriculture, focusing on the safety, effectiveness and quality controllability of veterinary drugs, and non key data may not be provided temporarily. If it is suggested that it can be used for emergency, the Veterinary Bureau of the Ministry of Agriculture shall put forward audit opinions according to the evaluation opinions of the evaluation center, and issue technical standard documents after being approved by the leaders of the Department in charge. Relevant veterinary drug manufacturers shall apply for temporary veterinary drug product approval number in accordance with the measures for the administration of veterinary drug product approval number. We believe that subunit vaccine has absolute advantages in safety. Generally, there will be no problem similar to the strengthening of gene deletion vaccine strain. Once it passes the emergency evaluation, it is highly likely to directly enter the application stage of veterinary drug products. If the plague vaccine is not successfully commercialized, it will drive the expansion of the whole vaccine sector. We expect that under the background that 650 million pigs are fully immunized with non plague vaccine, it will give birth to more than 10 billion market space, add more than 5 billion net profit, and be divided up by several major vaccine enterprises, and the industry competition pattern may usher in major adjustments.
[seed industry] corn prices may remain high and volatile in 2022. On the supply side, after the central rural work conference in 2021, Heilongjiang will increase the soybean area by 10 million mu in 2022, and the corn planting area may decrease in 2022; In 2021, the cumulative import of corn was 28.35 million tons (a year-on-year increase of 150.88%), superimposed with the substitution effect caused by the increase of imports of sorghum, barley and other products in the same period, China’s corn supply is expected to remain stable this year. On the demand side, the downstream breeding capacity remains high to support the feed demand. The corn price may fluctuate at a high level in 2022, which is unlikely to fall sharply. The high grain price may drive the prosperity of corn seeds upward. We believe that the short-term valuation correction in the seed industry sector will not change the long-term trend of the industry. In 2021, the intensive introduction of seed industry policies, the release of national corn and rice variety approval standard (revised in 2021) and the adoption of the draft amendment to the seed law are aimed at encouraging seed industry innovation and combating licensing infringement. We believe that the intellectual property protection mechanism of seed industry will continue to be strengthened in the future, It is conducive to seed enterprises with technological innovation ability to seize a higher market share.
Investment advice
[pig breeding] cost reduction and efficiency increase in 2022 is still the main theme of the industry. It is recommended to pay attention to enterprises with “abundant reserves of sows, continuous realization of cost improvement and abundant cash flow” in the next 1-2 quarters.
[white feather broiler] the industrial chain has experienced a loss for one year. The deep loss in the downstream inhibits the enthusiasm to make up the fence. The decline in the price of chicken seedlings affects the profits of the incubator, or forces the chicken breeding farm to take the initiative to reduce the production capacity. We may see the month on month contraction of the supply of chicken seedlings in the third quarter of 2022, and follow-up pay attention to the changes in the stock of grandparents and parents. It is recommended that enterprises focusing on the layout of the whole industrial chain business and the target of the upstream main chicken seedling sales business.
[yellow feather broiler] even if the industry accelerates the clearing of production capacity at the low point of the cycle, the head enterprises still expand against the trend. It is expected that the market share of the head enterprises will further increase after the gradual withdrawal of free range farmers in the future. It is recommended to pay attention to the leading leaders in continuous capacity expansion and cost control, as well as enterprises that comply with the development trend of frozen fresh sales.
[dynamic insurance] the sector has fallen to a reasonable range due to the drag of pig price. It is expected that the reversal of pig price in the second half of 2022 will lead to the upward prosperity of the industry, and the sector is expected to usher in valuation repair. It is suggested to lay out at a low level. It is recommended to pay attention to Pulike Biological Engineering Inc(603566) with obvious advantages in subunit vaccine research and development, as well as industry leaders with rich product reserves.
[seed industry] with the intensive introduction of favorable policies and the improvement of supply and demand fundamentals, the industry has ushered in an upward cycle. It is expected that high-quality seed enterprises will usher in a performance release period in the next few years, the curtain of genetically modified organism breeding will open, the corn seed industry will usher in strong capacity expansion expectations, and the leading seed enterprises may usher in a high-speed growth stage. It is recommended to pay attention to seed enterprises with rich transgenic technology and variety reserves.
Risk tips
Covid-19 epidemic spread risk, international situation change risk, policy implementation less than expected risk, etc.
