Recently, as the temperature rises, digestion of white stripes from large pigs has slowed down, and slaughterers have reduced their procurement of medium and large pigs, but the number of pigs sold has increased, and market supply has exceeded demand, which has led to a brief correction in pig prices.

According to statistics from Zhuochuang, the average price of pigs nationwide was 15.11 yuan/kg on April 16, down 0.05 yuan/kg from the previous month.

However, the South is generally stable, and the farming side is more willing to raise prices.

As the north falls, the north-south price gap narrows, leading to a decrease in the transfer of pigs from South to North, supporting the market. It is expected that pig prices may stop falling and stabilize in the short term.

Since the end of 2022, the pig breeding industry has continued to lose money for 15 months, and the average loss margin is also at a high level in history.

In this context, the cash flow of farming companies is already in a tight situation, and some listed companies have begun to experience overdue debts and filing for bankruptcy and restructuring.

In a context where short-term cash flow cannot be mitigated, production capacity of some highly leveraged and high-cost large-scale enterprises may continue to clear production capacity, thereby expanding the cumulative reduction of production capacity in the pig breeding industry, and the inflection point of the pig cycle will also become more and more clear.

Changjiang Securities released a research report stating that in the first quarter of 2024, when pig prices are still relatively low, it is expected that sector performance will continue to be under pressure, and the industry may begin to remove production capacity nonlinearly.

Looking at the later stages, against the backdrop of continued deep losses in the pig breeding industry, production capacity of some high-cost and high-leverage enterprises may continue to clear, thereby further expanding the cumulative reduction in production capacity, and the inflection point of the pig cycle will also become more and more clear. Currently, the average market value of pig breeding companies is still at a relatively low level, and we are optimistic about investment opportunities in the sector.

Pig breeding related enterprises:

COFCO Jiajiakang (01610): In 2023, the company released 5.2 million pigs, an increase of 26.7% over the previous year, slightly exceeding the target at the beginning of the year. High-end flaxseed pork sales performance is impressive, and various extended products are being developed. Overall food consumption has been sluggish recently, but the company's high-end flaxseed pork has performed well. On the basis of a year-on-year increase of more than 100% in 2022, sales growth of about 47% was achieved in 2023.

Wanzhou International (00288): Wanzhou International accounts for a high proportion of overseas business. As far as 2023 is concerned, the company's domestic business accounted for 33.3% and 64.4% of total revenue and operating profit, respectively, while its business in the US and Mexico accounted for 54% and 22.4% of total revenue and operating profit, respectively. In addition, Wanzhou International also contributed some of its revenue and operating profit from its European business.