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The price of pigs fell to the lowest in 8 years.

Time
2019/03/01 17:36
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After a week of rising pig prices, the price of pigs began to fall again. Today's national average price dropped by 0.11 yuan/kg from yesterday, and the decline was rapid. Faced with such a volatile market, experts in the industry all said that the price of pigs became a mystery. Recently, after analyzing the historical data of China's pig price for ten years, the financial sector securities companies believe that the bottom of the pig price has arrived. It is expected that the strong rebound of pig prices is expected to start from April to May and continue until the end of the third quarter. The amplitude is above 30%.


1 The price of pigs fell rapidly, mainly due to the low season demand and the slaughter of pigs.

As of March 30, the national average price of live pigs was about 10.48 yuan / kg, down about 30% from the beginning of the month. We believe that the rapid decline in pig prices, in addition to cyclical factors, is mainly:

1, the demand is off season. According to the historical performance of the past 11 years, pig prices usually fall in 2-4 months. Mainly due to the consumption of pork is still digesting the salted products of the Spring Festival.

2. The concentrated supply of pigs causes excessive supply. On the one hand, large-scale pig farms continue to expand production capacity in recent years. On the other hand, the low-temperature weather of blizzard before the Spring Festival affects traffic, leading to passive pressure on pigs, and the concentrated outing after the festival has aggravated the fall in pig prices. According to grassroots research, the weight of the slaughter in March was about 116.3 kg/head, up 0.63 kg/head from the previous month; the proportion of big pigs increased by 8 percentage points. According to the announcement of Wenshi and Muyuan, the two companies' sales in January-February increased by 13% and 51% respectively, and the weight of the slaughter increased by 0.3% and 8% respectively. Among them, the stock of Makino in March was released. It increased by 129% year-on-year.

2 The price of pigs has reached the bottom of the stage, optimistic about the strong rebound in the second quarter.

We believe that the bottom of the pig price has reached the end and the second quarter is expected to have a strong rebound. The main basis is:

1. Ten years of historical data show that pig prices will generally start to rise from May. In the past two quarters, the average price of pigs has increased by about 20%.

2. At present, the pig price is close to the variable cost of pig breeding, and the industry has lost for 5 weeks. The cost of pig farming can be divided into variable costs and fixed costs. The former includes feed, labor, animal protection and utilities, and the latter mainly includes sow amortization (or piglet cost) and depreciation of fixed assets. Variable costs are a major part of aquaculture costs (about 65-70%) and are the bottom line for farms' profitability. Since 2010, the price of live pigs has only fallen below the variable cost in 2014, and the corresponding is also the deep loss of the industry and the bottom of the cycle. At present, the pig price (10.48 yuan / kg) is close to the variable cost of the scale farm (about 10.2 yuan / kg), the industry has been losing money since March. As of March 30, the breeding loss of the self-supporting pig farm was about 269 yuan/head (the deepest loss since 2010 was -305 yuan/head in April 2014), and the farmed pig farm had a loss of about 338. Yuan/Head (the deepest loss since 2011).

In terms of the historical performance of pig prices, each farmer's loss will bring about a 30% increase in pig prices; and the longer the previous losses, the greater the increase. Specifically, in 2010, there were 5 consecutive losses from the self-supporting pig farm:

1. March-June 2010: The loss range is 40~120 yuan/head. The pig price has risen since mid-April and lasted until mid-November, with a gain of about 53%. There was a lack of data on pre-farming profitability; from the end of April to June, due to the increase in corn prices, the price of pigs did not move, and there was a loss of about 10 weeks; as of the end of the price increase, the industry continued to earn 21 weeks.

2. March-June 2013: The loss range is 40~120 yuan/head. The pig price has rebounded since mid-April and lasts until the end of September. The rebound was about 33%. Before the pig price rebounded, the industry had suffered a loss for three consecutive weeks; after the pig price rose, the self-propagating pig farm still had a loss of about 8 weeks; as of the end of the price increase, the industry continued to earn about 12 weeks.

3. January-May 2014: The loss range (60-300 yuan/head) is deeper than the previous two and is more serious than the pig farms that have purchased piglets. The pig price showed a cyclical trough in mid-April, and then rose to the end of May, and the pig farm turned losses into profit, ending the gains, an increase of about 28%.

4. June-July 2014: The loss range is 20-85 yuan/head. The pig price has risen since the beginning of July and lasted until the end of August, with an increase of about 19%. Before the pig price rose, the industry had suffered a continuous loss of about 5 weeks; as of the end of the price increase, the industry continued to earn about 5 weeks.

5. November 2014-April 2015: The loss range is 10-170 yuan/head. The price of pigs has risen since mid-March 2015 and lasted until the end of August, with an increase of about 61%. Before the price increase, the self-supporting pig farm has been losing 18 consecutive weeks; as of the end of the price increase, the self-supporting pig farm has continuously earned 15 weeks.

Combined with historical pig price performance, it is expected that the strong rebound in pig prices is expected to start from April to May and continue until the end of the third quarter, with a rise of more than 30%.

3 Leading profit is the leading indicator, and the cycle is still not expected.

We believe that this wave of pig price increases is more similar to the 2013 rebound, rather than the 2014 cycle reversal. The core logic is that under the background of slowing demand growth, de-capacity is the main driving force for pig price reversal, and we expect the supply of pigs to continue to grow in 2019. There are three main points:

1. Earnings for three years in the previous period, there is no pressure on funds. Large-scale pig farms have turned a profit since 2015, and retail investors have made significant profits since 2016. The industry profit lasting for about 3 years has greatly eased the pressure on the farm.

2. It is estimated that the pig breeding industry in 2018 still has a small profit, and there is insufficient power to significantly reduce production capacity. In the first quarter of 2018, the average price of live pigs was about 13.1 yuan/kg. If the pig price rebounds in the second quarter as scheduled, and the range is above 30%, combined with the peak season effect in the fourth quarter is expected to drive the pig price to remain high. It is expected that the average price in 2018 will be around 13-13.5 yuan/kg, down about 10% year-on-year. Based on historical data and corn price and piglet price trend, we estimate that the industry aquaculture cost is about 13.3 yuan / kg (piglet cost 450 yuan / head, feed cost 870 yuan / head, labor 190 yuan / head, other costs 84 yuan / Head), so it is estimated that the industry is still meager in 2018.

3. The expansion of the industry's production capacity has only begun to increase in the second half of the year. It is expected that the production capacity will continue to rise in 2019. Although the hog farming industry has been fully profitable since the second quarter of 2015, due to the long-term and deep losses of 2013-2014 for two consecutive years, the large-scale capacity expansion of the industry started from 2016 and increased significantly in 2017. Taking into account the two-year construction cycle, new production capacity will start to be produced in the second half of 2018.

The profitability of leading enterprises can be used as a leading indicator for the bottom of the cycle, and currently there is no medium-term loss in Makino. The reversal of pig prices often starts with the quarterly losses of leading companies, while the current leading companies only have a single monthly loss. For example, at the low point of the previous round (April 2014), both Wins and Makino leading companies experienced losses for two consecutive quarters. According to the performance of the pastor, the company expects to achieve a profit of 1.25-150 million yuan in the first quarter of 2018. It is estimated that the company's total cost is around 11.6 yuan / kg. If the pig price rebounds by more than 30% as scheduled, the company will not have a quarterly loss in the third quarter of 2018.

4 Stock price resumption: rebound opportunity in the down cycle

Pig price resumption: Since July 2006, China's pig price has risen by 20 waves, of which 8 waves appear in the periodic down channel and 12 waves appear in the cycle up channel. Specifically:

1. The 8-wave rebound of the pig price downtrend channel is mainly driven by demand. The time of occurrence is mostly in the fourth quarter, and the average duration is 8 weeks. The rebound rate is more than 20%. The only exception is a wave of rebounds in mid-April 2013, which started in the off-season of pork consumption and lasted for about 21 weeks, with a rebound rate of 33%. The reason why this wave of rebound in April 2013 was so strong was the loss of farming that lasted for about 3 weeks.

2. The 12-wave price increase of the cycle up channel is mostly started in the second or fourth quarter, and ends in the third quarter. The duration is more than three months, and the increase rate is more than 30%.

Stock price resumption: The rebound of the pig price in the cyclical down channel will also bring the stock price of the breeding stocks and the post-cyclical stocks up. The general stock price increase is consistent with the increase of the pig price. From the point of view of the start-up point (low season) and factors (industry loss), we expect that the pig price rebound will be closer to the rebound in the second quarter of 2013. At that time, the pig breeding stocks of the hens increased by about 42%, the feed stocks of Dabei farmers rose by about 22%, and the treasury stocks increased by about 38%.

Source: Financial website