The Zhitong Finance App learned that Huatai Securities released a research report saying that pig prices have fluctuated and declined since April but the pullback has not been significant. The off-season will end, pig prices are expected to rise steadily from May, 24Q2 pig prices may improve year on month, and drive pork's contribution to CPI correction. Concerned that the reversal of the cycle was highly realized, and the continued reduction in production capacity is expected to drive the reversal to a high level and sustainability exceeding expectations.

Huatai Securities's views are as follows:

1) There was a slight correction in pig prices in April. The bank expects 24Q2 pig prices to improve month-on-month, driving pork's contribution to CPI to a positive one. Since 2023, the overall depletion of breeding sows has continued to accelerate, and the reversal of the follow-up cycle has been highly realized. At the same time, production capacity is expected to continue to be eliminated under cash flow pressure, or drive cycle reversals at a high level and continue to exceed expectations. Stock prices are ahead of pig prices, and valuations are still low. It is recommended to actively lay out the breeding sector. 2) Pig prices continued to fall last week, or mainly due to the gradual release of supply pressure; last week, the prices of white feather broiler and chicken fry rose by 3.48% and 5.83%, respectively, due to a rise in product sales.

Topic: The off-season is coming to an end. What should we pay attention to when investing in pig stocks now?

Pig prices have fluctuated and declined since April, but the pullback has not been significant. The off-season is coming to an end, pig prices are expected to rise steadily from May, 24Q2 pig prices may improve year on month, and drive pork's contribution to CPI to the right. Since 2023, the overall decline in breeding sows has continued to accelerate. Corresponding to 24H2 pigs, the probability that pigs will be released has shrunk markedly, and the reversal of the focus cycle has been highly realized. At the same time, the reduction in production capacity of sows according to the official statement in March exceeded expectations. The bank believes that the current cash flow pressure in the pig breeding industry may limit the steady recovery of sow production capacity in the short term. Combined with the balance sheets of 24Q1 listed companies, which may be difficult to recover, the production capacity of most companies, particularly underperforming entities, is likely to continue to be reduced; most small to medium scale farmers may also continue to be affected by financial pressure, and there is a time lag of about 4 months for backup sows to be able to reproduce sows. The bank expects that sow production capacity will continue to decline, which in turn will drive the reversal of pig prices in this cycle to exceed expectations. Historically, stock prices are usually ahead of pig prices, and valuations are still low, so it is recommended to actively lay out breeding.

Breeding: Pig production capacity removal logic or no change, white chicken production capacity shrinks or gradually materializes

1) Pigs: Pig prices continued to fall last week. The average price of pigs last week was 15.05 yuan/kg, down 1.16% from week to week, or mainly due to early pressure and gradual release of supply pressure from secondary fattening. The off-season is coming to an end, and the reversal of the focus cycle is highly realized. At the same time, the reduction in production capacity of sows that can grow is expected to continue in the context of cash flow pressure, which is expected to drive a high degree of cycle reversal and sustainability exceeding expectations. It is recommended to actively lay out the aquaculture sector. 2) Last week, the average price of white feather broiler was about 8.14 yuan/kg, up 3.48% from week to week, and the average price of white feather broiler seedlings was about 3.45 yuan/feather, up 5.83% from week to week, or mainly driven by the warming of products. The bank expects that in 2024, there may be a clear gap between supply and demand for white feather chicken, which is expected to drive the profit improvement in the broiler breeding industry chain.

Cultivation: The second batch of genetically modified products has been tested, and technical barriers to the seed industry are expected to rise

Following the announcement by the Ministry of Agriculture and Rural Affairs of the first batch of 37 genetically modified corn and 14 genetically modified soybean varieties in China in October 2023, the Ministry of Agriculture and Rural Affairs announced the second batch of qualified varieties on March 19, 2024. The policy is driving supply-side expansion of genetically modified varieties, and the commercialization process of genetically modified genes is expected to accelerate. Under the trend of promoting genetically modified varieties, pioneering breeding companies and leading character companies may be the first to benefit.

Pets: The volume and price of pet food exports increased sharply in February 2024, and the cumulative value of pet food exports in January-February was +33.9%

In February 2024, China's pet food exports continued the year-on-year high trend of the previous five months. Under RMB, China's pet food exports were +22.2% year-on-year. Volume and price are +22.8% and +4.6% respectively. Among them, exports to the US, a major region, have achieved a year-on-year high increase for 6 consecutive months. Leading companies resonate with the industry market on the same frequency, and the 24Q1 performance is expected to benefit. From a domestic perspective, China's pet industry has now gradually transitioned from a period of rapid development to a period of stability, and the effects of domestic substitution are obvious. Today, competition in the domestic market is fierce, and small brands may be constrained by financial pressure one after another. Leading companies are expected to accelerate the pace of market expansion with sufficient investment in sales expenses, R&D, and supply chain advantages.

Risk warning: pig prices fall short of expectations, the number of pigs released falls short of expectations, rising raw material prices, risk of the African swine fever epidemic, etc.