Looking back at the first half of 2023, the A-share listed companies in the pig farming industry were in a dire situation, with almost the entire sector suffering losses. Entering 2024, especially after the second quarter, the national pig prices have been climbing month by month, rising from below 14 yuan/kg at the beginning of the year to over 20 yuan/kg currently, setting a new high since mid-December 2022. According to disclosed data, 50% of A-share pig farming companies have achieved profitability in the first half of 2024, and 90% of listed pig enterprises are expected to be profitable or reduce losses in the second quarter.

Reporters from the Securities Times learned that the continuous decline in the inventory of breeding sows, coupled with the outbreak of African swine fever and other factors, has created a supply gap in the pig market, leading to an increase in pig prices. However, during this round of pig price increases, the pig farming market has been more rational and cautious, with no significant increase in the enthusiasm of pig enterprises to enter the market, and they are no longer daring to expand on a large scale. In the second half of the year, the industry hopes to maintain the current high pig prices without the momentum for a surge in pig prices.

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Ninety percent of listed pig companies' performance improved in the second quarter.

For major pig enterprises, the second quarter of 2024 is a crucial period for recovery. Among more than 20 A-share listed pig farming companies, about 90% of them are expected to achieve profitability or reduce losses for the quarter.

According to the data that has been announced, Wens Foodstuff Group Co., Ltd. (300498) is likely to be the most profitable company among the breeding enterprises, with a net profit of 1.25 to 1.5 billion yuan expected in the first half of 2024, compared to a loss of 4.689 billion yuan in the same period last year, and a loss of 1.236 billion yuan in the first quarter of this year.

Focusing on the leading pig farming stock, Muyuan Foods Co., Ltd. (002714) increased its revenue but not its profits in the first quarter of this year, with a revenue of 26.272 billion yuan but a loss of 2.378 billion yuan. In the following second quarter, Muyuan Foods made a successful turnaround, with a revenue of 30.594 billion yuan and a net profit of 3.207 billion yuan, becoming the most profitable A-share listed pig farming company in that quarter.

According to the latest semi-annual report for 2024, during the period of January to June this year, Muyuan Foods achieved a revenue of 56.866 billion yuan, a year-on-year increase of 9.63%; it achieved a net profit of 829 million yuan, successfully turning a loss into a profit, with a year-on-year increase of 129.84%.

Against the backdrop of a loss in the first quarter of this year, companies such as Shennong Group (605296) and Tangrenshen Group (002567) also achieved a turnaround from loss to profit in the first half of the year thanks to the recovery in the second quarter. In addition, although they did not achieve a turnaround from loss to profit in the first half of the year, companies such as New Hope (000876), New Five Feng (600975), Juxing Agriculture (603477), Jinxin Agriculture (002548), Dabeinong (002385), Huatong Shares (002840), and Dongsheng Shares (001201) all reversed the downward trend and showed recovery and reduced losses in the second quarter.

Among them, New Hope expects a net loss of 1.2 billion yuan for the first half of the year, which has become the best semi-annual report performance in the last four years. In the first quarter of this year, New Hope's net profit was -1.934 billion yuan, a year-on-year decrease of 14.75%. This means that New Hope has turned a loss into a profit in the second quarter, with a single-quarter net profit exceeding 750 million yuan.

By the end of June, pig prices rose by more than 26% year-on-year.In the first quarter of this year, the domestic pig prices have been running at a low level, and the entire industry remains pessimistic, generally in a state of loss. However, after entering the second quarter, the industry's capacity reduction has led to an improvement in the supply and demand relationship, and pig prices have continued to rise, with a year-on-year increase of over 26% by the end of June.

Data from the National Bureau of Statistics shows that in the first half of 2024, the national pig output was 363.95 million heads, a decrease of 11.53 million heads year-on-year, down by 3.1%; pork production was 29.81 million tons, a decrease of 510,000 tons year-on-year, down by 1.7%. At the end of the second quarter, the national pig inventory was 415.33 million heads, a decrease of 19.84 million heads year-on-year, down by 4.6%; an increase of 6.84 million heads quarter-on-quarter, up by 1.7%. In the second quarter, although the national pig inventory rebounded, in absolute terms, it was only higher than the end of the first quarter of this year, still at a low level in the past two years. This means that in the second half of the year, the increase in the national pig output will be limited.

In terms of breeding sows, after peaking at 43.9 million heads in December 2022, the inventory continued to decline, and the decline in breeding sows accelerated at the end of 2023; as of the end of the second quarter this year, the national breeding sow inventory was 40.38 million heads, a decrease of 2.59 million heads year-on-year, down by 6%; an increase of 460,000 heads quarter-on-quarter, up by 1.1%.

Bi Hui, an agricultural product researcher at Baocheng Futures, told the Securities Times · eCompany reporter that compared to the last upcycle, the enthusiasm for the second round of breeding has not seen a significant increase in this round. After experiencing the baptism of market price fluctuations, the second round of breeding market in this round of pig price rise is more rational, and more is reflected in the process of pig price rise, choosing to sell in time, and continuing to roll over the supplement later.

Under the background of the national pig capacity reduction, the supply and demand situation of pigs has undergone significant changes. In the second quarter, pig prices were higher than the average cost line of the pig breeding industry, and the profitability of enterprises has been significantly improved. According to the monitoring data of the National Bureau of Statistics, pig prices have risen for four consecutive months, with a month-on-month increase of 10.4% in June, and the average price of pigs has risen from below 15 yuan/kg in January to nearly 18 yuan/kg in June.

A person related to New Hope told the Securities Times · eCompany reporter that the main reason for the rise in pig prices is still from last year, after several years of losses in the industry, there was indeed a reduction in capacity, and the inventory of breeding sows continued to decrease. In addition, coupled with the outbreak of African swine fever in the winter of 2023 and the spring of 2024, it has formed a gap in pig supply since the second quarter of this year.

The person believes that due to the longer time of the continuous decline of breeding sows, coupled with the normal production law, from the start of mating with mature sows, to the market of fat pigs, it takes at least more than 10 months. If it starts from the supplement of young sows, it takes longer, so the pig price in the second half of the year will still be at a relatively high level. However, against this backdrop, it is also possible to have short-term price fluctuations due to the concentrated market of secondary breeding in some months, or the outbreak of consumption during holidays.

The leading pig company's breeding cost has been reduced to 14 yuan/kg.

In 2024, not only has the pig price warmed up, but the prices of pig feed main materials such as soybean meal and corn have also significantly declined, allowing the profit space of pig breeding enterprises to be fully released.

Data from Open Source Securities shows that in the first half of the year, pig feed production was 66.3 million tons, a year-on-year decrease of 7.3%. At the same time, the average purchase price of corn and soybean meal for feed companies was 2524 yuan/ton and 3680 yuan/ton, respectively, down 13.2% and 17% year-on-year, respectively; the significant price callback has driven the factory prices of compound, concentrated, and additive premixed feed products to decline year-on-year.Securities Times · e-Company reporter called Muyuan Foods, and a person from the securities department stated that the company's production indicators are gradually improving, and the cost of pig farming is continuously decreasing. The complete cost of pig farming in June 2024 has been reduced to around 14 yuan/kg, which is about 1 yuan/kg lower than the average of 15 yuan/kg for the whole year of 2023, and about 1.8 yuan/kg lower than the first two months of this year. Among them, the improvement of production performance and the reduction of period costs contributed about 60%, and the decline in feed costs contributed 40%.

Muyuan Foods believes that the decline in feed raw material prices is gradually reflected in the breeding costs, and the complete cost of pig farming is expected to further decrease. The company is confident in achieving the cost target of 13 yuan/kg by the end of this year. Overall, Muyuan Foods is more optimistic about the pig market prices in the second half of the year.

The reporter learned from New Hope that in June, the company's complete cost of fattening pigs at the operating farm line has been reduced to 14.5 yuan/kg, and it is expected to be below 14.2 yuan/kg by the end of the year according to this trend. In contrast, Wens Foodstuffs is relatively cautious in its stance. However, Wens Foodstuffs reminds that the company's operating performance is greatly affected by the fluctuations in the prices of pork, chicken, and feed raw materials. Although the pork and chicken markets have warmed up in the first half of the year, there is a certain uncertainty in the market conditions in the second half of the year.

The decline in feed raw materials has a certain effect on reducing the cost of pig farming. Juxing Agriculture and Animal Husbandry stated that the company has strengthened genetic genes, pig herd health management, and optimized breeding process management, and the complete cost of fattening pigs in June is within 14 yuan/kg.

Regarding the breeding cost, Bi Hui believes that this is mainly divided into two aspects: piglet cost and feed cost. Among them, the price fluctuation of piglets is itself affected by the enthusiasm of the entire market for restocking. If the enthusiasm for restocking is high at the beginning of the year, the cost of piglets will increase; thereafter, as the feed cost gradually decreases, it offsets the rise in piglet prices, and overall, it achieves a reduction in pig farming costs.

However, at present, there is uncertainty in the fluctuations of piglet and feed prices. For example, whether the feed price can continue the downward trend is a big question mark. Bi Hui said that because the current market response may only last until the end of this year, the main futures contract 2501 is for the contract in January of next year; by next year, it will be above the 2505 contract, which is targeted at the South American market, and at that time, it may face weather factors such as El Niño and La Niña.

New Hope believes that the feed raw material prices have been declining for a relatively long time in the past year, and the trend is likely to continue, but the magnitude may not be as large as before.

New Hope and Juxing Agriculture and Animal Husbandry reduce the amount of financing

Although pig prices continue to rise, the recovery speed of this round of pig production capacity is relatively slow, affected by factors such as a long period of losses, high asset-liability ratio maintained for several years, preference for pressurizing pens and second breeding, etc.

Leading pig companies are also more cautious about future market conditions. New Hope and Juxing Agriculture and Animal Husbandry were originally among the few pig farming companies still promoting financing and expanding production, but both have recently significantly reduced the amount of financing and investment projects.In August, New Hope announced that it would reduce the fundraising target for its previously announced private placement plan from a maximum of 7.35 billion yuan to 3.8 billion yuan by the end of 2023. In comparison, after the adjustment of New Hope's private placement plan, the acquisition of minority equity in its holding subsidiaries was cut, while the biosecurity prevention and control and digital intelligence upgrade projects for pig farms, as well as the repayment of bank debts, were retained.

Regarding this, a person related to New Hope told the reporter that by the end of 2023, the listed company's transfer of the white feather meat poultry and food deep processing sectors would bring back some funds. Starting from the second quarter of this year, with the improvement of operations and a significant increase in profits, the financial situation has also improved. Therefore, some of the originally planned uses for the raised funds can now be covered by their own funds, reducing the need for external fundraising.

Subsequently, Superstar Agriculture and Animal Husbandry also adjusted its private placement plan, reducing the total fundraising amount from a maximum of 1.2 billion yuan to a maximum of 800 million yuan. It should be noted that this is the second time Superstar Agriculture and Animal Husbandry has reduced the fundraising target; initially, it planned to raise a total of no more than 1.75 billion yuan, which would be used for the construction of pig farming capacity, research and development of breeding technology, digital intelligent construction projects, and supplementary working capital. Compared to the initial 2023 plan, Superstar Agriculture and Animal Husbandry reduced the pig farming capacity construction projects from 9 to 3, and the proposed use of raised funds was reduced from 1.167 billion yuan to 426 million yuan.

In Bi Hui's view, after suffering heavy losses in the previous years, although the second half of this year may be somewhat better, pig enterprises will still be relatively cautious, thinking that they can just make up for the losses of the first half, and they no longer dare to make large-scale expansion moves. This is because the market's fluctuation risks are evident; if there is a large-scale expansion followed by significant industry fluctuations, the company may face greater loss risks. From a phased perspective, the current profit from pig farming is indeed good, but there is no high expectation for pig prices in the second half of the year, especially in the fourth quarter, and there is no momentum to continue the crazy rise in pig prices.