CITIC SEC: Accelerated Capacity Reduction in the Pig Industry Expected, Promising Business Prospects in the Fourth Quarter of 2026 and 2027.

CITIC SEC released a research report stating that pork prices have fallen to a 10-year low, with ample supply, and it is expected that pork prices in 26H1 will fluctuate at a low level. Continued deep losses combined with gradual deepening of production capacity control policies are expected to accelerate the clearance of production capacity, and the pork industry is expected to improve in 26Q4/2027. The current valuation of the sector is low, and we continue to recommend: 1) leading companies with cost advantages and dividend potential; 2) undervalued companies. Key points from CITIC SEC: Pork prices are rapidly falling, and it is expected to remain at a low level in 26H1. Affected by ample supply and post-holiday demand decline, pork prices have rapidly fallen to around 10 yuan/kg recently, close to a ten-year low. According to data from Yonyou Consulting, the average industry loss this week (March 6-March 12) is 250-300 yuan/head, with losses further widening. Looking ahead, the number of sows in inventory, the number of newborn piglets, weight, and the utilization rate of second-parity sow pens are still not low. It is estimated that pork prices will remain in a deep loss channel in March-April, and pork prices in 26H1 will remain at a low level with fluctuation. Losses + deepening of production capacity control policies are expected to accelerate the clearance of production capacity. Since the beginning of this year, with the stabilization and rise of bulk commodity prices, the cost of pig feed has been under pressure to rise, combined with continuous decline in pork prices, the industry is rapidly losing blood. Recently, prices of piglets and retiring sows have fallen rapidly, and market-driven production capacity reduction is expected to accelerate. Since March, production capacity control meetings for pigs have continued to be launched, balancing the number of sows for breeding may be further reduced. It is expected that production capacity control will continue to be an important direction in the future, potentially constraining the industry's capacity replenishment. With the dual driving forces of market-driven and policy-driven production capacity reduction, the pork industry is expected to improve in 26Q4/2027. Risk factors: Policy measures and implementation progress do not meet expectations; natural disasters; pork price changes exceed expectations; massive outbreak of animal diseases; food safety issues.