China International Capital Corporation: Weakening pig prices and accelerated destocking put pressure on aquatic feed volume and profits.

China International Capital Corporation (CICC) released a research report stating that pig prices in August may further weaken, leading to wider industry losses, with capacity de-stocking potentially accelerating compared to July. Following the capacity de-stocking in the first half of the year and a seasonal increase in demand in the second half, the bank expects the average price of live pigs in 2H26 and 1Q27 to be 11 and 11.5-12.5 yuan/kg respectively. In the feed sector, rising fishmeal prices combined with low farming profitability may put pressure on both volume and profits in aquaculture feed. CICCs main viewpoints are as follows: Prediction on Pig Prices: The price rebound in July lacks fundamental support, and prices in August may correct downwards. In the short term, the bank estimates that the supply-demand ratio in July 2026 has slightly strengthened by 2% compared to June, while the ratio in August is expected to remain stable. The bank judges that the better-than-expected price in July is due to short-term inventory disruptions and speculative demand, suggesting that prices in August may correct downward due to supply delays. In the medium term, the bank expects the supply of live pigs in 2H26/1Q27 to increase by 2%/-3% year-on-year, and the seasonal switching between peak and off-peak demand from 1H26 to 1Q27 may first reduce and then increase the supply-demand ratio, leading to an expected average price of live pigs in 2H26 and 1Q27 centered at 11 and 11.5-12.5 yuan/kg. Live Pig Operations and Capacity: Cash outflows in July have slowed, but pressure remains, and capacity de-stocking in August may accelerate compared to July. 1) Operations: In July, the cost of self-bred and self-raised pigs in the industry was 12.6 yuan/kg, flat month-on-month; the total cost for Muyuan in July was 11.5 yuan/kg, down by 0.2 yuan/kg month-on-month and exceeding the industry average by 1.1 yuan/kg. 2) Funding: Cash outflows for enterprises have slowed in July. The bank estimates that the average cash loss per pig for sampled companies reduced by 130 yuan/pig to 91 yuan/pig compared to June, with the cash loss indicator at the historical 58th percentile. 3) Capacity forecast: The de-stocking speed of sows nationwide slowed in July; the bank expects that increased industry losses in August may accelerate capacity de-stocking month-on-month. Feed: Rising fishmeal prices are increasing aquaculture feed costs, pressuring both volume and profits in aquaculture. 1) Production: The bank expects the year-on-year growth in live pig supply to drive an increase in pig feed growth in Q3; stable profitability in meat poultry and improving profitability in layer hens stabilize meat poultry feed and improve layer feed; however, the year-on-year decline in aquaculture profitability suppresses feeding enthusiasm, putting marginal pressure on aquaculture feed. 2) Distribution margin: The rise in fishmeal prices is constraining the distribution margin of aquaculture feed. The bank calculates that in July the distribution margins per ton for pig feed, poultry feed, and aquaculture feed were 719, 677, and 1363 yuan respectively, a decrease of 24, 33, and 110 yuan month-on-month. Valuation and Recommendations The report recommends leading pig producers Muyuan Foods Group, Wens Foodstuff Group, and DEKON AGR, as well as leading feed producer Guangdong Haid Group. Risks Risks include lower-than-expected pig prices, significant increases in raw material costs, and risks related to pig epidemics.