The current pig price is seasonal, but based on the in-depth analysis of the market supply and demand structure, we believe that this trend is difficult to sustain, and the logic of the industry's capacity has not fundamentally changed. In the context of "two highs and one low" - that is, high sow inventory, high frozen product inventory and relatively weak market demand - pig ** will remain weak in the medium term.
The current stage is in the traditional consumption season before the pickling and Spring Festival, so the short-term pig price is in line with the law of the market. However, this seasonal demand stimulus cannot effectively support the long-term rise in pig prices, after all, the core factor determining the trend of pig prices is still the balance between supply and demand in the market.
We expect that the pig industry will continue to implement the main task of reducing capacity throughout 2024. At present, the number of fertile sows has been reduced by 122%, referring to historical experience, such as in the 2014-2016 cycle, the cumulative reduction of production capacity before the inflection point of pig prices reached about 23%. Considering the improvement of sow production performance in recent years, this round of capacity reduction may need to reach at least 25%-30% to truly achieve a reversal of supply and demand. In view of this, the current process of capacity reduction has not yet reached a level sufficient to support the continuation of pig prices, which means that 2024 will still be a year of deep capacity reduction in the industry.
For the recent small number of piglets, there are voices in the market that compare it to the first half of 2023. However, we believe that in addition to the impact of the epidemic, the current piglets are also due to the positive supplemental behavior caused by the expectation of pig prices in the industry this year. Unlike in 2023, the current farmers' piglet replenishment is based on the annual loss in 2023, and the cash flow situation of the entire industry is not sufficient. In the first half of 2023, the piglet market will be better, which is based on the rich cash flow of breeding subjects brought by high pig prices in the second half of 2022. Therefore, in the current market environment, it will be difficult for piglets in 2024 to replicate the continuous improvement in the first half of the year.
In summary, although pig prices may fluctuate seasonally in the short term**, in the medium and long term, weak pig prices will continue to promote the industry's de-capacity process. Investors do not need to worry too much about the impact of seasonality**, but should seize the opportunity of sector adjustment and actively consider increasing their positions. In this context, we focus on the following high-quality companies: Muyuan shares, Wen's shares, superstar agriculture and animal husbandry, Jingji Zhinong and Shennong Group, these companies are expected to stand out with their competitive advantages in the process of industry adjustment.
A shares