Home » Guoyuan Securities: Against the trend of the pig cycle, pig prices may be brewing a round of super market provider Zhitong Finance

Guoyuan Securities: Against the trend of the pig cycle, pig prices may be brewing a round of super market provider Zhitong Finance

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© Reuters. Guoyuan Securities: Against the trend of the pig cycle, pig prices may be brewing a round of super market

Zhitong Finance APP learned that as of October 24, the national average price of live pigs has risen by 15.14 yuan/kg. Compared with the beginning of the month, the pig price has increased by 4.85 yuan, an increase of 47%; on the 24th, the pig price rose by 0.76 yuan.

According to statistics, on October 24, the price of pigs in 7 pig production areas across the country rose across the board, and the price of pigs in various provinces and cities increased by 0.4~1.65 yuan/kg! Among them, the provinces where the price of pigs increased significantly were the Beijing-Tianjin area. Pig prices soared by 1.65 yuan, Shanxi pig prices soared by 1.45 yuan, Shandong and Zhejiang pig prices rose by 1.2 yuan, Jiangsu pig prices rose by 1.1 yuan/kg, while in other provinces, the price of pigs generally rose by 0.6-0.9 yuan/ Kilogram!

Guoyuan Securities released a research report that believes that a round of pig de-slaughter cycles and the current policy orientation will promote the stabilization of pig prices. It is expected that the subsequent live pig inventory will drop by at least 25%. Once this rate of decline occurs, this corresponds to the price of pork. The growth rate is about 90%. The stock prices of pig companies often appear in the early stages of the pig cycle. Calculated by time, you can now gradually pay attention to pig breeding companies.

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The main points of Guoyuan Securities are as follows:

1. The pig cycle means that the price of pigs will complete a round of rise and fall every 3-4 years. The fluctuation principle is based on the cobweb model in economics. The growth cycle is fixed, so the diameter of the pig cycle is stretched longer.

2. A simpler rule is: the number of breeding sows determines the future slaughter situation of live pigs, which in turn affects the market pork price. However, due to the improvement of breeding technology, this time difference has been shortened from 1 year to 7 months Before and after.

3. The core contradiction of the current pig cycle is: the current pig-to-food ratio is at a historically low level and below the break-even point, but the growth rate of the pig stock is still at a high level.

4. The main reason for this is that China’s current pig production capacity is still dominated by retail investors, and production is disorderly. At the beginning of 2021, due to the industry’s wrong expectations of supply capacity, the excessive restocking of breeding sows led to the inertial growth of the current hog stock. In terms of time, this round of restocking will lead to a peak of slaughter at the end of this year.

5. In any case, the de-slaughter cycle of a round of pigs should be inevitable:

1) The stock of live pigs and reproductive sows stopped accelerating in July last year. At least now, pork prices are facing a small inflection point where the growth rate has fallen to stable. At present, the year-on-year price of pork has been at the bottom range;

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2) In addition to the cost of food, the current cost of labor, medicine, water, electricity and heating has also risen a lot, resulting in the current pig food price balance point higher than that of 17-18. If the current pig industry wants to turn losses into profits , The price of pork needs to rise by nearly 50%, which is difficult to achieve at least in the short term;

3) Regarding such a huge loss in aquaculture, whether it is an institution or a retail investor, it is actually difficult to sustain it for too long. In fact, the reduction of production capacity has already begun, and large-scale breeding companies have already begun to reduce production capacity as early as the beginning of 21st.

6. Of course, the current policy orientation is also pushing pig prices to stabilize:

1) Since July, we have carried out two rounds of pork purchasing and storage. Although the scale is not large, it is at least a signal to the industry;

2) In addition, it may be due to the high price of pork the previous year. Last year, the import volume of live pigs in China was abnormally large, but this year’s import volume dropped rapidly year-on-year.

7. The core logic of pork reversal is to de-stock. Once this round of de-stocking is formed, we expect that the intensity will not be small:

1) The past round of live pig replenishment should be excessive. The current live pig inventory is nearly 440 million, which is the highest level since 2014;

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2) When the number of live pigs in 2018 is around 330 million, pig breeding may lose money, not to mention the current balance point of pig feed price is much higher than that at that time;

3) We expect that there will be at least a 25% decline in the subsequent live pig inventory. Once this decline occurs, this corresponds to an increase in pork prices by about 90%.

4) The stock market of pig companies often appears in the early stages of the pig cycle. According to time calculations, we can now gradually pay attention to pig breeding companies.

8. Under this level of market, we expect that the price of chicken meat will also rise by a large margin due to the substitution effect.

9. In terms of convertible bonds, Muyuan shares, Wen’s shares, New Hope, and Zhengbang Technology may usher in opportunities for bargaining.

Risk warning: downside risk of pork price; large-scale outbreak of livestock and poultry disease; new crown epidemic affects consumption

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