Industrial: Deepening the Adjustment of Production Capacity for Live Pigs - How will the Bottom of the Cycle Unfold?

Industrial released a research report stating that the short-term cash flow bleeding process in the pig farming industry is still accelerating. The capacity for production is continuously being utilized, and the price of pigs is expected to reverse in the later period. It is recommended to invest in pig farming sectors that have cost advantages. After the low pig prices and the slowdown in expansion, continuous optimization of costs and industrial consolidation mergers can still bring profit growth to enterprises. Pig farming entities with cost advantages are expected to achieve long-term profitability. It is recommended to focus on benchmark companies with excellent cost control capabilities and companies with potential for significant cost reduction in the future. The main points are as follows: Capacity regulation has been upgraded three times, and a systematic capacity reduction framework has been established. Compared to 2014, this round of regulation has shown significant iterations: on the target side, the normal inventory of sows was reduced from 39 million in May 2025 to 37.5 million in May 2026, and the green range was tightened from 92%-105% to 92%-103%; on the mechanism side, in May 2026, the "Comprehensive Capacity Control Plan for Pig Production (Revised in 2026)" established a "graded capacity control mechanism," and companies with over 100,000 heads were included in the monitoring list, implementing annual production filing management; on the execution side, policies such as secondary fattening control, slaughter weight restrictions (120 kilograms), stricter environmental protection measures (some counties and cities no longer approving large-scale pig farms), and loan restrictions (prohibited for expanding scale) are continuously enforced. Deep losses in farming combined with policy regulation are gradually reducing industry capacity. Since Q3 2025, under the dual effects of policy constraints and a significant decline in pig prices, the domestic sow inventory has started a new round of reduction. As of the end of the first quarter of 2026, the pig production capacity is still in excess, and the pig prices gradually stabilized in Q2 2026, but the industry as a whole is still deeply in loss. With continuous cash flow consumption, industry capacity is expected to accelerate reduction. The industry has entered a new stage of "three lows," and there has been a qualitative change in corporate behavior. The high volatility cycle after the African swine fever has ended, and the industry will enter a new normal of "low pig prices, low volatility, low profitability." The growth logic of enterprises is shifting from "expansion of scale" to "extreme cost reduction + extension of the industry chain + going abroad." The target for slaughter from farming entities is being reduced, and they are extending towards downstream slaughter business development. Muyuan Foods Group has confirmed the establishment of farming capacity in Vietnam. Industry consolidation is accelerating, and cash flow security has become the top priority for survival. Risk warning: outbreak of animal diseases, natural disasters, policy changes, and substantial fluctuations in pig prices.