3.Sow production capacity continues to decentralize, and the industry is expected to usher in a cyclical recovery
3.1. The production capacity of fertile sows continues to decrease
In 2023, the number of fertile sows will continue to decline, and there is still room for decentralization in the future. Starting in January 2023, the number of fertile sows in China will gradually decline. As of the end of December 2023, the number of fertile sows in China reached 41.42 million, a decrease of 2.48 million or 56%；It is still 1% higher than the normal ownership of 41 million heads proposed in the "Implementation Plan for Pig Production Capacity Regulation and Control (Provisional)".
3.2 The supply of live pigs is expected to gradually decline
China's pig slaughter volume in 2023 has increased year-on-year, and it is expected that the supply of live pigs is expected to gradually decline in 2024. In 2023, a total of 726.62 million live pigs will be slaughtered in China, a year-on-year increase of 38%；Among them, Q1, Q2, Q3 and Q4 were 198.99 million heads, 176.49 million heads, 161.75 million heads and 189.39 million heads respectively, with a year-on-year increase respectively. 7% and 54%。As of the end of December 2023, China's pig inventory reached 434.22 million heads, a year-on-year decrease of 41%。Looking forward to 2024, according to the pig breeding cycle, the supply of live pigs will lag behind the supply of fertile sows for about 10 months, and we estimate that the supply of live pigs is expected to gradually decline in 2024 based on the trend of the number of fertile sows in 2023.
3.3 Hogs are expected to rebound
The overall performance of hogs** in 2023 was weak, and it is expected to gradually recover in 2024. From January to June 2023, the average price of three-yuan live pigs in the country will gradually drop from 16-17 yuan kg at the beginning of the year to 13-14 yuan kg; In July-August, it quickly rebounded to 17-18 yuan kg; It gradually fell back in September. As of December 31, 2023, the national average of ternary pigs is ** 1426 yuan kg, down 19% from the high point in early August 2023. The overall weak performance of hogs** in 2023 is mainly due to the abundant supply of hogs. Since January 2024, China's foreign ternary hogs** have increased from a low of 1343 yuan kg gradually recovered. As of January 29, the average price of three-yuan live pigs outside the country was 154 yuan kg. In the future, with the decline in the number of fertile sows transmitted to the supply of live pigs, it is expected that China's live pigs are expected to gradually rebound in 2024.
3.4 The cost of pig breeding is expected to continue to fall
China's corn and soybean meal spot prices continue to fall, and are still at a relatively high level in recent years. In 2023, the spot prices of corn and soybean meal in China will fall from the high level at the beginning of the year. As of December 29, 2023, the spot price of corn was 256686 yuan tons, compared with the beginning of the year**126%；The spot price of soybean meal was 3962 yuan tons, 15 yuan compared with the beginning of the year4%。Since January 2024, the spot prices of corn and soybean meal in China have continued to fall. As of January 26, the spot price of corn was 240373 yuan tons, down 6 from the beginning of the year4%；The spot price of soybean meal was 3520 yuan tons, down 11 percent from the beginning of the year2%, at present, corn and soybean meal are still at a relatively high level in recent years.
3.5 Pig breeding profitability is expected to rebound
Earnings per capita continued to be negative at the beginning of 2023 and are expected to recover slowly in 2024. In 2023, the average profitability of China's pig breeding heads will be poor overall, among which self-farrowing pigs will only achieve a small profit in August, and they will lose money at other times; The average profit of purchased piglets has been negative. As of January 26, 2024, the profit from farrow-farrowing pig farming is -2052 yuan, the profit of purchased piglets is -10089 yuan. In the future, with the de-transmission of the production capacity of fertile sows to the production capacity of pigs, the first class of pigs is expected to gradually recover, the cost of breeding is expected to fall, and it is expected that the average profit of pigs will rebound slowly in 2024.
3.6 Pig breeding plate
Earnings under pressure in 2023 Net profit is expected to be in the red in 2023. In the first three quarters of 2023, the SW pig breeding segment achieved a total operating income of 2808700 million yuan, a year-on-year increase of 49%；Net profit loss attributable to shareholders of the parent company 165$100 million; Revenue increased year-on-year, mainly due to increased volume; The net profit loss was mainly affected by the relatively low pig price. In 2023Q3, the net profit loss attributable to shareholders of the parent company in the SW hog breeding segment decreased compared with Q2, mainly due to the rebound of hog** compared with Q2. Due to the continuous decline in hogs**, it is expected that the net profit of the SW hog breeding sector in 2023Q4 will continue to lose.
In 2023, leading earnings will be under greater pressure. In the first three quarters of 2023, the net profit attributable to the parent of the leading pig breeding company, Muyuan shares, Wen's shares, and New Hope all suffered losses, with losses of 18 respectively400 million yuan, 45300 million and 38600 million yuan. In Q4 2023, profitability is expected to continue to be under pressure due to the continuous decline in domestic live pigs**. According to the live pig sales briefings released by various companies, the live pig sales of Muyuan shares, Wen's shares and New Hope in 2023 will be 6381 respectively60,000 heads, 2,62620,000 heads and 176820,000 heads, the year-on-year growth rate was respectively. 6% and 21%; Respectively, the sales revenue of 1082200 million yuan, 462600 million and 269100 million yuan, the year-on-year growth rate was respectively. 7% and -01%。
4.Investment advice
Gave the pig breeding industry an "overweight" rating. China is the world's largest pig and pork production and demand country, in the medium and long term, China's pig breeding industry scale and concentration still have a lot of room for improvement. In the short term, according to the trend of the number of fertile sows in 2023, it is expected that the supply of live pigs will slowly decline in 2024, and China's live pigs are expected to gradually recover; It is expected that the global supply of soybeans and corn will be loose as a whole in 2024, the cost of pig breeding in China may continue to fall, and the profitability of pig breeding is expected to gradually recover. From the perspective of valuation, the overall valuation of the SW pig breeding sector is currently in a relatively low position in history, and it is recommended to pay attention to the low-level layout opportunities of the sector, and pay attention to the leading pig breeding companies with cost advantages and rich cash flow reserves, such as Muyuan shares (002714), Wen's shares (300498), and New Hope (000876).
This is an abridged excerpt from the report, the original PDF of the report
In-depth report on agriculture, forestry, animal husbandry and fishery-pig breeding industry: following the de-production capacity and grasping the turning point of the cycle-Dongguan**-20240130[Page 17]".
Report**: Value Catalog