Important information
On January 20, the State Council held a press conference. By the end of 2021, 43.29 million sows could be bred in China, and the production capacity returned to a reasonable level. The annual pork output was 52.96 million tons, an increase of 28.8% over the previous year, basically reaching the level of historical normal years. Pig breeding in 2021 is a bumper harvest year, with an average profit of 564 yuan per head, which is about 200 yuan higher than that in normal years.
On January 20, the Ministry of agriculture and rural areas made arrangements at the press conference of the State Council to do everything possible to do a good job in grain production and ensure that grain output continues to remain above 1.3 trillion kg. The key point is to achieve “two stability and two expansion”, stabilize grain ration and corn; Expand soybeans and oilseeds. We will vigorously promote the belt planting of soybean and corn in suitable areas, and strive to increase the area by 15 million mu in 2022.
On January 20, the Ministry of agriculture and rural areas said that the weeding effect of the pilot GM soybean was more than 95%, which could reduce the weeding cost by 50% and increase the yield by 12%. The control effect of transgenic corn on Spodoptera meadowi can reach 95%. At the same time, the pilot transgenic soybean and corn have no adverse impact on the production environment. At present, the regulations of four departments, including the measures for the examination and approval of major crop varieties, are being revised to steadily and orderly promote the industrialized application of transgenic and other biological breeding.
Core view
Breeding industry: in terms of pigs, the main pig breeding enterprises accelerated their marketing in December, the peak season entered the late stage, the local epidemic situation upgraded, the demand slowed down, the high level of pig prices fell back, and the breeding profits returned to the loss range. In terms of quantity, the pig price recovered in November, and the column pressure mood increased. In December, the pig market fell from a high level, and breeding enterprises should speed up their marketing in the peak season. The marketing of major listed pig enterprises totaled 8.4965 million, an increase of 12.6% month on month. In terms of price, according to China pig breeding network, the monthly callback of three yuan outside pigs in December was 9.5%. At the end of the year, the demand for pickle enema preparation was basically over, the epidemic suppressed some demand, the market supporting policy was withdrawn, and the marketing of major breeding enterprises was accelerated, which eased the overall relationship between supply and demand. In terms of listed companies, the average sales price of major listed pig enterprises in December decreased except Zhengbang, and the average monthly sales price of muyuan and Wenshi decreased by 7.6% and 5.7% respectively. In terms of profit, pig breeding fell down with the rise of price, and the breeding profit returned to the loss range. As of January 21, the profit of pig self breeding was -300.36 yuan / head, and the capacity of the industry was eliminated or accelerated.
We believe that with the end of the peak consumption season, the epidemic has repeatedly suppressed some demand, and there will be some downward pressure on pig prices in the future. 1) On the supply side, according to the disclosure of the Ministry of agriculture and rural areas, the number of newborn pigs per month in large-scale pig farms since March 2021 is more than 30 million, and continues to grow. By the end of 2021, there were 43.29 million fertile sows in China, with a month on month increase of 0.8%, which was still higher than the normal population of 41 million fertile sows. In addition, in November, the national pig feed output was 11.41 million tons, an increase of 4.6% month on month, which reflects that the industry stock is still abundant. Overall, China’s pig production will remain abundant for some time to come; 2) On the demand side, with the passage of time, the production and preparation of bacon and sausage will be gradually completed at the end of the peak season. In addition, considering the impact of the recent epidemic control on the overall consumption, the demand in this round of peak season will be callback after the peak.
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). From January 1 to 15, although the price of pigs decreased by 12.95%, the Shenwan breeding sector increased by 3.26%, and the specific pig listed companies increased significantly. Obviously, 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.
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. However, on the whole, the low pig price in the third quarter and the extreme value of the sector breeding loss also mean that the most pessimistic expectation of the sector has been released, and there is a safety margin down the sector. From the recent breeding profits, the self breeding and outsourcing piglet breeding profits have entered the loss range one after another, and the capacity removal 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. According to the China Animal Husbandry Association, the stock of parents’ generation of yellow feather broilers was 13.4356 million in November, which has been at the low point of nearly 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; In the short term, it is supported by consumption at the end of the year, boosted by long-term economic recovery, and the yellow feather broiler sector is expected to usher in a business cycle. Pay attention to the relevant targets of Jiangsu Lihua Animal Husbandry Co.Ltd(300761) , Hunan Xiangjia Animal Husbandry Company Limited(002982) , Wens Foodstuff Group Co.Ltd(300498) and other sectors.
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.
Key recommendations: China’s large-scale aquaculture leaders with obvious cost advantages [ Muyuan Foods Co.Ltd(002714) ], and [ 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, the central government will issue an action plan for the revitalization of the seed industry to promote the development of the seed industry in five aspects: Comprehensively Strengthening the protection and utilization of germplasm resources, vigorously promoting the innovation and tackling key problems of the seed industry, supporting the development of advantageous seed enterprises, improving the construction level of seed industry base, and severely cracking down on illegal acts such as license infringement. 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 commercialization of transgenic technology is approaching. On November 12, the Ministry of agriculture and rural areas issued the decision of the Ministry of agriculture and rural areas on amending some seed industry regulations (Draft for comments). On December 30, Liu Peilei, director of the agricultural genetically modified organisms safety management division of the Department of science, technology and education of the Ministry of agriculture and rural areas, said that the industrialization pilot of genetically modified soybeans and corn carried out by the Ministry of agriculture and rural areas had achieved remarkable results. Biological breeding continues to make historic progress, and commercialization is gradually approaching.
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” is the iteration of biological breeding technology. The draft of seed industry regulations on November 12 exceeded expectations in many aspects, and will continue to promote commercialization in the future. “Reshaping” is the reshaping of the industry pattern. On November 24, the National Conference on promoting the work of supporting excellence of seed enterprises once again stressed that “we should improve and strengthen a number of seed industry leading enterprises with integrated innovation ability and adapt to market demand, and build the backbone force for the revitalization of seed industry”. Dragon 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.
Recently, there has been a significant adjustment in the seed industry sector. The CITIC seed industry index fell by 3.78% in the past week, Yuan Longping High-Tech Agriculture Co.Ltd(000998) , Beijing Dabeinong Technology Group Co.Ltd(002385) , Shandong Denghai Seeds Co.Ltd(002041) fell by 1.96%, 4.24% and 4.20% respectively. We believe that there are three main reasons: first, the early sector has accumulated too high policy expectations, especially for the work and policy expectations of agriculture, rural areas and farmers around food security and seed industry security at the end of 21 and the beginning of 22; Second, it will take time to realize the achievements of the seed industry, especially the achievements of biological breeding. We expect that the approval and promotion of biological breeding varieties can be carried out by the end of 22 at the earliest; Third, the recent style of China’s foreign markets has put some pressure on the growth sector.
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 recommendations: seed industry leaders with genetically modified trait reserves [ Yuan Longping High-Tech Agriculture Co.Ltd(000998) ], leading genetically modified technology and multiple businesses [ Beijing Dabeinong Technology Group Co.Ltd(002385) ].
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 oilseeds such as soybeans 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 recover as the cost side – the pressure in the future Shenzhen Agricultural Products Group Co.Ltd(000061) cycle will improve marginally and the demand side – ushers in the Spring Festival stock season at the beginning of the year. Focus on integrated supply chain management and operation of leading enterprises. Key recommendation: grain and oil leader [ Yihai Kerry Arawana Holdings Co.Ltd(300999) ] that is expected to develop in the overall kitchen business.
Risk tip: the economic recovery is less than expected, the epidemic situation, etc
