Looking back at the first half of 2023, the A-share listed companies in the pig farming industry were in dire straits, 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 the A-share pig farming companies achieved profitability in the first half of 2024, and 90% of the 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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Performance of 90% of listed pig enterprises improves in Q2

For major pig enterprises, the second quarter of 2024 is an extremely important 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 during this period.

Based on the data already announced, Wens Foodstuff Group Co., Ltd. (300498) is likely to be the most profitable company in the breeding industry, with a net profit of 1.25 billion 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 first pig farming stock, Muyuan Foodstuff 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 second quarter, Muyuan Foodstuff successfully turned the situation around, 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 Foodstuff 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 losses into profits, with a year-on-year increase of 129.84%.

Against the backdrop of losses in the first quarter of this year, companies such as Shennong Group (605296) and Tangrenshen Group (002567) have also achieved overall profitability in the first half of the year thanks to the recovery in the second quarter. In addition, although they failed to achieve a turnaround in the first half of the year, companies such as New Hope (000876), Xinwufeng (600975), Juxing Agriculture (603477), Jinxin Agriculture (002548), Dabeinong (002385), Huatong Shares (002840), and Dongsheng Shares (001201) have all reversed the downward trend and seen a recovery and reduction in losses in the second quarter.

Among them, New Hope expects a net loss of 1.2 billion yuan in 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 losses into profits in the second quarter, with a single-quarter net profit exceeding 750 million yuan.End of June Pig Prices

Year-on-Year Increase of Over 26%

In the first quarter of this year, domestic pig prices remained at a low level, and the industry as a whole was still not optimistic, with a general state of loss. However, after entering the second quarter, the industry's capacity reduction led to an improvement in the supply and demand relationship, and pig prices continued to rise, with a year-on-year increase of over 26% by the end of June.

Data from the National Bureau of Statistics show that in the first half of 2024, the national pig outturn was 363.95 million heads, a decrease of 11.53 million heads year-on-year, down 3.1%; pork production was 29.81 million tons, a decrease of 0.51 million tons year-on-year, down 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 4.6%; an increase of 6.84 million heads quarter-on-quarter, up 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 of inventory in the past two years. This means that in the second half of the year, the increase in the national pig outturn 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 sow inventory accelerated at the end of 2023; as of the end of the second quarter of this year, the national breeding sow inventory was 40.38 million heads, a decrease of 2.59 million heads year-on-year, down 6%; an increase of 0.46 million heads quarter-on-quarter, up 1.1%.

Bi Hui, an agricultural product researcher at Baocheng Futures, told the Securities Times · e-Company reporter that compared to the last upcycle, the enthusiasm for the second round of breeding entry has not seen a significant increase. After experiencing the baptism of market price fluctuations, the second round of pig price upcycle market is more rational this time, and it is more manifested in choosing to sell pigs in a timely manner during the pig price rise, and continuing to roll over the breeding in the later period.

Under the background of the national pig capacity reduction, the pig supply and demand situation has undergone significant changes, and the pig price in the second quarter is higher than the average cost line of the pig farming 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 · e-Company reporter that the main reason for the rise in pig prices is still that since last year, after several years of consecutive losses, the industry has indeed undergone capacity reduction, and the number of breeding sows has 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 jointly formed a supply gap in pig production since the second quarter of this year.

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

Leading pig enterprise breeding costsReduced to 14 Yuan/kg

In 2024, not only did pig prices show a recovery, but the prices of main feed ingredients such as soybean meal and corn for raising pigs also significantly decreased, allowing the profit margins of pig farming enterprises to be fully released.

In the first half of the year, the pig feed production was 66.3 million tons, a year-on-year decrease of 7.3%. At the same time, the average purchase prices of corn and soybean meal for feed companies were 2,524 yuan/ton and 3,680 yuan/ton, respectively, which decreased by 13.2% and 17% year-on-year; the significant price correction led to a year-on-year decrease in the ex-factory prices of compound, concentrated, and additive premix feed products.

A reporter from Securities Times · e Company called Muyuan Foods, and a relevant person from the securities department stated that the company's various production indicators have been gradually improving, and the cost of pig farming has continued to decrease. The complete cost of pig farming in June 2024 has been reduced to about 14 yuan/kg, which is about 1 yuan/kg lower than the average of 15 yuan/kg for the whole year of 2023, and has decreased by about 1.8 yuan/kg compared to the first two months of this year. Among them, the improvement in production performance and the reduction of period costs contributed about 60%, and the decrease in feed costs contributed 40%.

Muyuan Foods believes that the decline in feed raw material prices will gradually be reflected in the breeding costs, and the complete cost of pig farming is expected to further decrease. They are confident in achieving a 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 complete cost of fattening pigs at the company's operating sites had been reduced to 14.5 yuan/kg, and according to this trend, it could be reduced to below 14.2 yuan/kg by the end of the year. In contrast, Wens Foodstuffs expressed a more cautious attitude. However, Wens Foodstuffs reminded that the company's operating performance is greatly affected by the fluctuations in the prices of pork, poultry, and feed raw materials. Although the market conditions for pork and poultry have warmed up in the first half of the year, there is a certain uncertainty in the market conditions for the second half of the year.

The decline in feed raw materials has a certain effect on reducing the cost of pig farming. JuXing Agricultural and Pastoral 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 was within 14 yuan/kg.

Regarding the breeding cost, Bi Hui believes that it 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; later, 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 price fluctuations of piglets and feed. For example, whether the feed price can continue the downward trend is a big question. Bi Hui said that because the current market response may only last until the end of this year, the main futures contract 2501 targets the contract for next January; next year it will be above the 2505 contract, targeting the South American market, and at that time it may face weather factors such as El Niño and La Niña.

New Hope believes that in the past year, the price of feed raw materials has been declining for a long time, and the current trend may continue, but the extent may not be as large as before.New Hope and Superstar Agriculture and Animal Husbandry

Reduce the Amount of Private Placement Financing

Despite the continuous rise in pig prices, the recovery of pig production capacity in this round is relatively slow, affected by factors such as a long period of losses, high asset-liability ratio maintained for several years, preference for suppressing pens and secondary breeding.

Leading pig enterprises are also more cautious about the future market. New Hope and Superstar Agriculture and Animal Husbandry were among the few pig farming enterprises that were still promoting financing and expansion, but both have recently significantly reduced the amount of financing and investment projects.

In August, New Hope announced that it would reduce the fundraising amount of the private placement plan announced at the end of 2023 from no more than 7.35 billion yuan to 3.8 billion yuan. In comparison, after the adjustment of New Hope's private placement plan, it eliminated the project of acquiring minority equity in holding subsidiaries, and retained the projects of pig farm biosafety prevention and control and digital and intelligent upgrading, as well as repaying bank debts.

Regarding this, a person related to New Hope told the reporter that at the end of 2023, the listed company transferred the white feather poultry and food deep processing sectors, bringing back some funds. Starting from the second quarter of this year, as the operation improved, profits increased significantly, which also improved the financial situation. Therefore, some of the originally planned uses of the raised funds can be replaced with self-owned funds, reducing the need for external fundraising.

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

In Bi Hui's view, after the painful losses of the previous years, although the second half of this year will be better, pig enterprises will still be relatively cautious, thinking that they can just make up for the losses of the first half, and they dare not make large-scale expansion moves. Because the market fluctuation risk is here, if there is a large-scale expansion and then encounters a major industry fluctuation, the enterprise may bear a greater loss risk. From a phased point of view, the current pig farming profit is indeed good, but there is no high expectation for the pig price in the second half of the year, especially in the fourth quarter, and there is no momentum for the pig price to continue to be crazy.