The Zhitong Finance App learned that CaiTong Securities released a research report saying that the current pig cycle is at the bottom of the downward cycle. The current upward phase has continued for 6 months, while the downward phase has continued for about 16 months, which is close to 3 times the upward period. Judging from historical data, the correlation coefficient between pork CPI and CPI from 2011 to now is over 60%. Recently, with the recovery of pork CPI, the CPI trend has also rebounded. However, at present, the CPI growth rate is still being dragged down by other consumption. If only changes in pig prices are taken into account, and other factors remain in the current state, the forecast is that under the assumption of a neutral scenario, CPI may show a trend of low and high levels during the year. The third and fourth quarter will be an important period of acceleration in price increases.
The views of CaiTong Securities are as follows:
Why is the bottom of this pig cycle so long?
It is currently at the bottom of the downward cycle. The upward phase of this round has continued for 6 months, while the downward phase has continued for about 16 months, which is close to 3 times the upward period. The continued decline in pig prices is related to the impact of the last round of “non-epidemic” on the industry. Continued high pig prices in the last round brought rich profit returns to breeding enterprises, thereby enhancing the resilience of enterprises to risks; at the same time, it attracted large amounts of capital, forcing breeding enterprises to continue to achieve their production efficiency at variable costs; in addition, the gradual deepening of large-scale pig farming and the improvement in pig breeding efficiency also provided support for the continued decline in prices. The pig market price is mainly affected by the supply side
Is the index of how many sows can be bred still valid?
The pig market price is mainly influenced by the supply side. Among them, the number of sows that can be raised is one of the most important forward-looking indicators. It generally leads to the supply of pigs over a period of 10 months. The explanation for the price of sows that can be kept was strong during the “non-epidemic” period, but this downward cycle can proactively “fail” in terms of how many sows can be kept. In the first half of 2022, pig sales continued to rise during the summer when it should have been declining, and slaughter volume continued to decline, confirming that farmers concentrated their pressure on the market at the time. This speculative behavior raised market concerns about concentrated pig sales, and the frozen product storage rate of slaughter companies also declined earlier than in previous years. Following a sharp turn in pig prices, there was a phenomenon where the number of breeding sows kept changed in the same direction year over year as the price of pigs. The bank believes that regardless of short-term interference from speculative behavior, long-term sow breeding is still forward-looking.
How did pig prices fluctuate during the year?
Taking into account seasonal fluctuations in demand, the supply of capable sows with a 10-month delay accounts for a lower share of consumer demand, and the higher the pig price. Under a neutral assumption, pig prices picked up in the second quarter and accelerated in the third quarter. However, the overall increase may have been moderate. First, many companies' listing targets have continued to grow. Driven by falling feed costs, pig farming profits have rebounded, and the overall degree of industry elimination may be limited; secondly, the frozen product storage ratio remains high, or becomes a potential supply for the future market; third, as large-scale farming rates and farming efficiency improve, the market's response to price changes may also accelerate; finally, we need to be wary of the repetition of the phenomenon of farmers concentrating on cracking down. Pig prices are likely to rebound in the second half of the year, but the magnitude still needs to be observed.
How do pig prices affect CPI?
CPI was low and high during the year, and the second half of the year was an acceleration period. Judging from historical data, the correlation coefficient between pork CPI and CPI from 2011 to now is over 60%. Recently, with the recovery of pork CPI, the CPI trend has also rebounded. However, at present, the CPI growth rate is still being dragged down by other consumption. If only changes in pig prices are taken into account while other factors remain in the current state, according to the bank's forecast, under the assumption of a neutral scenario, CPI may show a trend of low and high levels during the year. The third and fourth quarter is an important period of acceleration in price increases.