Will the hog cycle finally turn around as “Second Brother” rebounds in value and listed pork companies forecast turning losses into gains?

On Wednesday evening, listed pork company Muyuan Foods announced its performance forecast for the first half of 2024. According to the announcement, Muyuan Foods is expected to achieve net income of RMB 0.7 billion to 0.9 billion and turn losses into profits in the first half of 2024, with basic earnings per share at Y0.13-Y0.17. In the same period last year, the basic earnings per share were a loss of Y0.52.

The company said the first half of 2024 achieved a turnaround to profitable operation. The main reason was due to the increase in the average sales price of live hogs and the decrease in the cost of raising live hogs from the same period last year.

In Q1 2024, Muyuan Foods suffered a loss of RMB 2.379 billion. According to calculations, Muyuan Foods is expected to achieve a profit of more than RMB 3 billion in Q2.

On the same day, another pork giant Tangrenshen also released its performance forecast. It is expected to achieve a profit of RMB 4 million to 6 million in the first half of 2024, compared with a loss of RMB 0.664 billion in the same period last year.

The announcement stated that the cost of raising live hogs continued to decline during the reporting period. At the same time, live hog prices in Q2 rose compared with the same period last year, which improved the overall profitability of the company and achieved a turnaround from losses to profits.

Previously, Dabeinong Technology Group's interim performance forecast also mentioned that the company's net income in the first half of 2024 was significantly better than the same period last year, and it achieved profitability in Q2.

Pig prices may have strong support in the second half of the year

As a leader in meat consumption, after experiencing a bottoming out phase in 2023, pork prices hit a new low after the Spring Festival this year, and the wholesale price of fresh pork fell to the lowest level since 2021. However, with the gradual return of production capacity to a reasonable level and the gradual improvement of market demand, the pig market has significantly warmed up in the middle of the year.

According to the CPI data released by the National Bureau of Statistics today, affected by supply and demand relations, pork prices rose by 11.4% month-on-month in June, which affected the CPI rose by about 0.14 percentage points month-on-month; pork prices rose by 18.1% year-on-year, an increase of 13.5 percentage points compared with the previous month.

According to the monitoring data of the Ministry of Agriculture and Rural Affairs, on June 28, the average price of pork in the national agricultural product wholesale market was Y24.21/kg, up 6.84% compared with Y22.66/kg on May 31 and up 28.30% from the same period last year.

Chen Xueli from Kaiyuan Securities said that the sale of young pigs will pressure pork prices in July, but continuous purchases of two-birth pigs will provide support. Under a backdrop of overall supply contraction, it is expected that pork prices will maintain a moderate and fluctuating upward trend in July.

As for the future, July and August are still the peak season for piglet replenishment, and the price of piglets is expected to be strongly supported. The price of 50 kg two-birth sows has remained stable at Y1,618/head since 2024, and the industry's cautious approach to mothers will help the growth of supply, and the reversal of the pig cycle is supported by strong supply and demand and multi-dimensional sentiments.

Kaiyuan Securities' analysis pointed out that this round of piglet inventory has reached a relatively low level since 2021, and according to calculations, pig supply will continue to shrink and be lower than the same period in 2023 after August 2024. By then, the continued shrinkage of pig supply combined with the continuous improvement of pig consumption will form strong support for the rise in pork prices. The reversal of the pig cycle has strong support intensity from the supply and demand sides and multi-dimensional sentiments.

According to the performance forecast of listed pig companies, it is rumored that the pig cycle is about to turn around. Muyuan Foods is expected to achieve a profit of RMB 0.7 billion to 0.9 billion in the first half of this year, compared with a loss of RMB 1.434 billion in the same period last year. Dabeinong Technology Group's interim performance forecast also mentioned that the company's net income in the first half of 2023 was better than the same period last year and achieved profitability in Q2. The performance forecast released by Tangrenshen also showed that it expects to achieve a profit of RMB 4 million to 6 million in the first half of this year, compared with a loss of RMB 0.664 billion in the same period last year. Pig prices may have strong support in the second half of the year, and it is expected that pork prices will maintain a moderate and fluctuating upward trend in July.