Pork prices have fallen for three consecutive months. Is the economic cycle failing?

Recently, the price of pork has shown a continuous downward trend, and the industry's prosperity cycle is not only unsustainable, but there are signs of gradual collapse. The Wind Pig Industry Index has also significantly underperformed the market. Pork prices have been declining for three consecutive months. As of November 13, 2024, the average price of lean pork for foreign three-yuan hogs in China was 16.57 yuan/kg, compared to 17.33 yuan/kg earlier in the month, a cumulative decrease of 0.76 yuan/kg, representing a 4.39% decline. Since hitting a low point in January 2024, domestic pork prices began to rise, peaking in August, followed by a decline. For example, in August, Wens Foodstuff Group's live hog price was 20.45 yuan/kg, dropping to 19.05 yuan/kg in September, and 17.64 yuan/kg in October; Muyuan Foods had commodity hog prices of 17.17 yuan/kg in October, lower than August's 19.71 yuan/kg and September's 18.65 yuan/kg. The national average wholesale pork price was 27.27 yuan/kg at the end of August, 25.54 yuan/kg at the end of September, and 24.66 yuan/kg at the end of October. In November, due to average performance in consumption and limited demand growth, as well as pressure from post-capacity breeding, there is an oversupply of live hogs in the market, leading to continued downward pressure on prices. Reasons why pork prices have not strengthened Industry information shows that reasons why pork prices have not strengthened include changes in breeding practices by farmers and market demand factors. For instance, during the previous period of rising pork prices, farmers delayed selling their pigs, leading to an increase in the supply of medium and large-sized pigs. In recent months, these newly added medium and large-sized pigs have been gradually coming to market, leading to an increase in supply. Without positive holiday news, consumption in restaurants and for dining-out has been average, with mainstream consumer demand limited and lacking effective support for pork prices. The most critical factor is that the current cycle of pork production capacity clearing may not be thorough. Data from the Ministry of Agriculture and Rural Affairs shows that as of the end of April 2024, the number of sows in China was 39.86 million, a decrease of only 3.23 million from the peak of 45.64 million in June 2021, a decrease of 12.6%. Compared to the previous cycle of capacity reduction, which went from 50.68 million in 2012 to 19.13 million in 2019, with a continuous reduction in capacity, and a capacity reduction rate of 62.3%. On one hand, the capacity reduction is slow and incomplete, on the other hand, capacity recovery is rapid! In the first quarter of this year, as pork prices rose slightly, the number of sows quickly rebounded, and by the end of June, it was maintained at around 40 million. Impressive third-quarter financial reports from pork companies fail to attract investors Currently, the performance of pig farming stocks is weak, in stark contrast to the impressive third-quarter financial reports from pork companies. For example, Muyuan Foods achieved operating income of 96.775 billion yuan in the first three quarters of 2024, a year-on-year increase of 16.64%; net profit attributable to shareholders of the parent company was 10.481 billion yuan, a year-on-year increase of 668.9%; non-GAAP net profit was 11.221 billion yuan, a year-on-year increase of 754.04%; basic earnings per share was 1.94 yuan, a year-on-year increase of 670.59%; The third-quarter results were even more impressive: operating income of 39.909 billion yuan, a year-on-year increase of 28.33%; net profit attributable to shareholders of the parent company was 9.652 billion yuan, a year-on-year increase of 930.20%; non-GAAP net profit was 10.342 billion yuan, a year-on-year increase of 866.04%; and basic earnings per share was 1.79 yuan, a year-on-year increase of 894.44%. Wens Foodstuff Group achieved operating income of 75.419 billion yuan in the first three quarters of 2024, a year-on-year increase of 16.56%; net profit attributable to shareholders of the parent company was 6.41 billion yuan, a year-on-year increase of 241.47%. In the third quarter, the company's operating income was 28.662 billion yuan, a year-on-year increase of 21.95%; net profit attributable to shareholders of the parent company was 5.081 billion yuan, a year-on-year increase of 3097.03%. Wang Yanan, Senior Analyst of Sublime China Information's pork industry, believes that the profit of the pig farming industry gradually increased in the first three quarters of this year due to rising pork prices and declining feed costs, providing dual support to breeding profits. In the fourth quarter, the increase in pig supply may exceed the increase in downstream slaughter volume, which could be negative for pork prices. It is expected that the price rebound may occur towards the end of December. This article was reprinted from "Wind Stocks", edited by Li Fo on GMTEight.