Huaan: Pig prices entering a downward cycle. Cost reduction remains a top priority.

Huaan releases a research report stating that the production capacity of pigs will slowly recover from the second quarter of 2024. According to statistics from the Bureau of Statistics, the cumulative increase in the inventory of sows from 2024 Q2 to Q4 is 2.2%. The industry predicts that the price of pigs will enter a downward cycle in 2025. The national average annual inventory of sows is highly negatively correlated with the national average annual price of pigs one year later. In 2024, the national average annual inventory of sows decreased by 4.8% compared to the previous year. Considering factors such as increased production efficiency, the pig price will still receive some support even though it is entering a downward cycle in 2025. Cost control will be a top priority during the downward cycle of pig prices. It is recommended to focus on the pig farming sector, with a specific recommendation for Wens Foodstuff Group (300498.SZ) and Muyuan Foods (002714.SZ). Key points from Huaan include: Slow recovery of production capacity, industry restructuring, and steady financing. The enthusiasm for replenishing sows in this round remains weak. According to statistics, from 2024 Q2 to Q4, the cumulative increase in the inventory of sows in China was 2.1%. In January 2025, the month-on-month inventory of sows decreased by 0.39%. Listed pig companies have become the main force in adding new production capacity. By the end of December 2024, Muyuan and Wenshi had increased their inventory of sows by a total of about 256,000 head, while the total new inventory of sows in China in Q4 was only 160,000 head. Restructuring and financing of the pig industry are progressing steadily. In December 2023, the reorganization of Jiangxi Zhengbang Technology was completed. By the end of September 2024, the debt-to-asset ratio of Zhengbang had decreased to 47%. On December 27, 2024, Anon Agricultural Investment completed its restructuring plan. Tegel Food is still in the restructuring process. In the second half of 2024, financing plans have made progress. Leshan Giantstar Farming & Husbandry Corporation received a notice of acceptance from the Shanghai Stock Exchange on December 5, 2024, but still needs approval from the Shanghai Stock Exchange and the Securities Regulatory Commission. New Hope Liuhe received acceptance notification of private placement from the Shenzhen Stock Exchange on December 22, but still needs approval from the Shenzhen Stock Exchange and the Securities Regulatory Commission before implementation. Zhejiang Huatong Meat Products received approval for private placement from the Securities Regulatory Commission on February 4, 2025. Multiple factors contribute to pre-Chinese New Year market performance falling short of expectations. In this cycle (December 2022-April 2024), a total of 9.2% has been sold. Pig prices reached a peak of 20.92 yuan/kg on August 15, 2024, and started to fall below expectations in September. The peak price of pigs did not reappear before the Chinese New Year. The improvement in production efficiency, biosecurity, the marginal change in pig slaughter weight in Q4 2024, and the high average slaughter weight are the main reasons why pig prices did not return to their peak levels. Factors such as pen pressure and secondary fattening will continue to affect short-term pig price trends. In 2025, pig prices enter a downward cycle, and cost control remains a top priority. According to statistics, pig production capacity has slowly recovered since the second quarter of 2024. In 2024 Q2 to Q4, the inventory of sows increased by 1.2%, 0.6%, and 0.4% respectively. The industry predicts that pig prices will enter a downward cycle in 2025, and cost control remains a top priority. Muyuan Foods and Wens Foodstuff Group have always had the highest costs in the industry. The comprehensive cost of fattening pigs at Muyuan Foods decreased from 15.8 yuan/kg in January-February 2024 to about 13.1 yuan/kg in January 2025. Without considering fluctuations in raw material feed prices, the target cost for Muyuan Foods in 2025 is to reach 12 yuan/kg. The comprehensive cost of raising meat pigs at Wens Foodstuff Group decreased from 15.2 yuan/kg in Q1 2024 to 12.8-13.0 yuan/kg in January 2025. A tentative goal has been set for the average annual comprehensive cost of raising meat pigs in 2025 to be 13.0 yuan/kg. In 2025, listed pig companies are expected to maintain a growth trend in production. 1. Mulyan Foods slaughtered 71.6 million pigs in 2024 and plans to maintain a certain increase in 2025. By the end of 2024, the inventory of sows was 3.512 million heads, a year-on-year increase of 12.2%. Wens Foodstuff Group slaughtered 30.18 million fattening pigs in 2024 and plans to slaughter 33-35 million fattening pigs in 2025. By the end of 2024, the inventory of sows was about 1.74 million heads, a year-on-year increase of 12.3%. New Hope Liuhe slaughtered 16.52 million pigs in 2024 and plans to slaughter between 16-17 million pigs in 2025, similar to 2024. 2. Jiangxi Zhengbang Technology slaughtered 4.15 million pigs in 2024, and with a significant increase in the inventory of sows and improvement in breeding and management levels, plans to slaughter over 7 million pigs in 2025. Tianbang stock slaughtered 5.99 million pigs in 2024 and plans to slaughter 7.1 million pigs in 2025 (5 million fattening pigs and 2.1 million piglets). 3. With the recovery of financing and the release of production capacity, companies such as Zhejiang Huatong Meat Products, Leshan Giantstar Farming & Husbandry Corporation, Yunnan Shennong Agricultural Industry Group, Shenzhen Kingkey Smart agriculture Times, among others, are expected to experience rapid growth in pig production in 2025. Risk warning: Epidemic; The decline in pig prices exceeds expectations;Overcapacity reduction fell short of expectations.Hola, cmo ests?