The Zhitong Finance App learned that Everbright Securities released a research report saying that looking ahead to the first half of 2024, supply pressure is expected to remain strong from the first quarter to the beginning of the second quarter of 2024 due to the high number of sows that can be raised for a long time in the first half of 2023, according to normal production capacity transmission. However, in the fourth quarter of 2023, under the influence of multiple factors such as low pig prices, financial constraints, and epidemic disturbances, the removal of sows capable of breeding has officially entered an acceleration period. The corresponding production capacity gap will gradually be reflected in the second half of '24, compounded by the release of demand in July and August, and the industry is expected to usher in an inflection point in the cycle. In the future, it is still necessary to dynamically pay attention to producer behavior, corporate cash flow, the development of the epidemic, and the recovery in demand, and grasp the cyclical position of pig prices.

▍ The main views of Everbright Securities are as follows:

Stronger supply suppresses pig prices, and diversification will accelerate

According to Boya Hexun, the price of pigs was 14.17 yuan/kg on December 29, down 1.46% from week to month. The price of 15 kg piglets was 20.75 yuan/kg, down 1.80% from week to week. According to Yongyi Consulting, the average weight released this week was 124.24 kg, an increase of 0.25% over the previous month. The storage ratio of frozen products in slaughterhouses was 17.27%, down 0.22 pct from month to month. Poor peak season is a foregone conclusion. Pig prices will remain low and fluctuate before the Spring Festival, and the reduction in production capacity is still the main line of the sector.

(1) The pattern of strong supply and weak demand will continue, and it is difficult to see a sharp rebound in pig prices in the short term. On the demand side, December has come to an end, and the New Year's Day holiday effect has not led to stronger pig prices. The peak of demand has passed, and actual performance falls far short of expectations. According to Yongyi data, frozen goods inventories fell by only 0.82% in December, and are still at a high level. On the one hand, slaughter companies' high inventory rates will suppress consumer demand; on the other hand, the continued low price of fresh meat will also put a lot of resistance to frozen products being sold. On the supply side, large-scale farms entered a centralized release period at the end of the year. In December, when the weight of pigs released continued to rise, and both volume and weight increased, market supply pressure increased. The supply and demand game will continue before the Spring Festival, and pig prices are expected to remain low and fluctuate.

(2) Accumulation of financial pressure in the industry. After a long period of deep losses, the current situation of financial constraints on the farming side has gradually become apparent.

(3) Autumn and winter are periods of high incidence of swine diseases. Farmers' investment in epidemic prevention decreased at the bottom of the cycle, increasing corresponding risks. Local epidemics are spreading, and the follow-up situation still requires continuous attention.

In summary, under the influence of low pig prices, tight capital, and swine disease, the industry has strong incentives to actively and passively remove production capacity, and the subsequent elimination of sows is still the general trend.

In 2023, the pig breeding industry ushered in the longest “cold winter”

As far as pig prices in the industry are concerned, the release of high production capacity in the early stages and the long-term weakness of consumer demand caused strong supply and demand throughout the year. Pig prices fluctuated around the 14-15 yuan/kg cost line for most of the time, and the industry has already fallen into deep losses. For large-scale enterprises, financial pressure is gradually increasing. At the stage where pig prices are bottoming out, the market agreed that continued deep losses can accelerate the removal of production capacity, thereby driving a reversal in the sector. However, at the bottom of the cycle, large-scale enterprises can also stabilize production capacity by reducing costs and increasing efficiency and multi-channel financing.

However, since 2020, the balance ratio of the industry has shown a long-term growth trend. By the end of September 2023, the average balance ratio of 15 listed pig companies had exceeded 70%. Currently, pig prices continue to fluctuate at a low level, the industry continues to lose blood, hematopoietic capacity is insufficient, and blood transfusions are close to the upper limit. Large-scale enterprises will face the most severe cold winter.

It is already known in the snow that spring letters have arrived

Looking ahead to the first half of 2024, since the number of sows that can be bred in the first half of 2023 has been high for a long time, according to normal production capacity transmission, it is expected that supply pressure will still be strong from the first quarter to the beginning of the second quarter of 2024. However, in the fourth quarter of 2023, under the influence of multiple factors such as low pig prices, financial constraints, and epidemic disturbances, the removal of sows capable of breeding has officially entered an acceleration period. The corresponding production capacity gap will gradually be reflected in the second half of '24, compounded by the release of demand in July and August, and the industry is expected to usher in an inflection point in the cycle.

In the future, it is still necessary to dynamically pay attention to producer behavior, corporate cash flow, the development of the epidemic, and the recovery in demand, and grasp the cyclical position of pig prices.

Risk analysis:

Prices of livestock and poultry products fell short of expectations; large-scale outbreaks of livestock and poultry diseases; and prices of raw materials fluctuated greatly.