The Zhitong Finance app learned that CITIC Construction Investment released a research report saying that in order to promote a reasonable recovery in pig prices, according to the relevant provisions of the plan, the National Development and Reform Commission will work with relevant departments to launch the third batch of central pork reserves during the year. The bank believes that collection and storage work focuses on influencing market sentiment through the release of signals, and that its impact on fundamentals is limited. It is more about stabilizing market expectations and building confidence, so as to stabilize production and supply. Although there will be an increase in consumer demand at the end of the year, this year's weather turns cooler and later, and the terminal market's current boost is limited. However, the current supply in the pig market is still relaxed, and it is difficult for pig prices to rise sharply. It is expected that the overall situation may still be dominated by range fluctuations.

Incident: According to monitoring by the National Development and Reform Commission, the national average pig food price ratio has been running between 5:1 and 6:1 for more than three weeks, and is in the second-level warning range for excessive decline determined by the “Plan for Improving the Government's Pork Reserve Regulation Mechanism to Ensure Supply and Price Stability in the Pork Market”.

CITIC Construction Investment's views are as follows:

Pig industry chain: the general direction of production capacity removal remains unchanged, and changes in the pace of removal are continuously observed

1. Weekly data: Last week (11.17-11.23), the listing price of commercial pigs was 14.83 yuan/kg, +0.46 yuan; the price of 15 kg piglets was 310/head, +19 yuan; the price of 50kg two-yuan sows was 1,535 yuan/head, the same month-on-month; the factory price of the top three grade white striped meat was 18.87 yuan/kg, +0.35 yuan; the price of commercial pigs released was all 123.79 kg, +0.58 kg month-on-month; the frozen product storage rate was 20.93%, +0.23ts month-on-month.

2. The general direction of decontamination of production capacity remains unchanged, and changes in the pace of decontamination are continuously observed. Recently, pig prices have been running at a low level. According to monitoring by the National Development and Reform Commission, the national average pig food price ratio has been running between 5:1 and 6:1 for more than three weeks, and is in the second-level warning range for excessive decline determined by the “Plan for Improving the Government's Pork Reserve Regulation Mechanism to Ensure Supply and Price Stability in the Pork Market”. In order to promote a reasonable recovery in pig prices, according to the relevant provisions of the plan, the National Development and Reform Commission, together with relevant departments, will begin the third batch of central pork reserve collection and storage work within the year. The bank believes that collection and storage work focuses on influencing market sentiment through the release of signals, and that its impact on fundamentals is limited. It is more about stabilizing market expectations and building confidence, so as to stabilize production and supply. Although there will be an increase in consumer demand at the end of the year, this year's weather turns cooler and later, and the terminal market's current boost is limited. However, the current supply in the pig market is still relaxed, making it difficult for pig prices to rise sharply. It is expected that the overall situation may still be dominated by range fluctuations.

In the first three quarters, the number of pigs released nationwide was 3.3%, and the number of sows kept declined over the same period last month.

Recently, the National Bureau of Statistics released the performance of the national economy in the first three quarters of 2023. In the first three quarters, 53.723 million pigs were listed nationwide, an increase of 16.93 million over the previous year, an increase of 3.3%. On a quarterly basis, the number of pigs released in the first, second, and third quarters increased by 1.7%, 3.7%, and 4.7% year-on-year, respectively, and the increase increased quarter by quarter. At the end of the third quarter, there were 442.29 million pigs nationwide, a year-on-year decrease of 1.66 million, a decrease of 0.4%; a year-on-year increase of 7.11 million, an increase of 1.6%. In the first three quarters, pork, beef, lamb, and poultry production was 69.74 million tons, an increase of 3.9% over the previous year, of which pork production was 43.1 million tons, an increase of 1.51 million tons over the previous year, an increase of 3.6%. There are 42.4 million sows capable of breeding, a year-on-year decrease of 1.21 million heads, a decrease of 2.8%, a decrease of 560,000, a decrease of 1.3% over the previous year. Basic production capacity has shrunk, but they are still within a reasonable range of normal stocks.

The removal of retail production capacity in October may be greater than the large-scale market.

According to Yongyi Consulting sample site data, the number of sows that can be raised in October was -0.85% month-on-month, and sample 2 (biased towards medium to large pig farms with 300 sows or more) was -0.32% month-on-month, both increasing the decline from September. Among them, the overall production capacity of the group's pig farms remained stable, some recovered production capacity, and there was also a slight difference in the performance of small to medium pig farms/retail farmers in the north and south. There was a slight difference in the performance of small and medium pig farms/retail farmers in the north and south. There was also a slight difference in the performance of small and medium pig farms/retail farmers in the north and south. There was also a slight difference in the performance of small and medium pig farms/retail farmers in the north and south. There was also a slight difference in the performance of small and medium pig farms/retail farmers in the north and south. Some regions in the north also actively fled. It is clearly larger than medium to large pig farms, and the mainstream in the South maintains a stable production attitude. The exit operation was caused by a small amount of capital, the epidemic, etc., and the extent of removal was limited. According to Mysteel sample site data, the number of breeding sows in October was -0.44% month-on-month, including -0.35% for large-scale farms and -3.08% month-on-month for retail investors; the decline was also slightly larger than in September, and judging from the main behavior of farming on different scales, the decline in retail production capacity was greater than that of large-scale farms.

Investment advice: Pig prices have continued to be sluggish this year. There has only been a clear rebound in July and August since the beginning of the year. For most breeding groups, continued losses have reached the longest in history. Uncertain market conditions about the future have also caused the prices of piglets and sows to be on a downward trend. Funding issues have become a major barrier for small to medium and retail investors; as winter approaches, the occurrence and development of swine diseases has also become an uncertain factor, and the pig breeding industry is once again in a difficult time. This scene is similar to the situation in the second half of '21, but at that time, due to extremely high average industry costs and extremely low pig prices, all breeding groups were at the stage of undifferentiated capacity removal. At this time, with the continuous adjustment of the industrial structure, groups and large-scale farms are gradually becoming industry players and showing strong resilience. Therefore, the judgment on the inflection point of the subsequent cycle still needs to be based on how long pig prices continue to be below the average cash cost in the industry, changes in group market behavior and production capacity increases and decreases, the development of swine disease, etc. The next peak consumption season will be an important observation period, and may also become an important window for investment.