Guotou Securities: The reversal of the pig cycle is approaching, and it is recommended to actively pay attention to breeding stocks.

Guotou Securities has released a research report stating that, referencing the normal breeding sow inventory set by the Ministry of Agriculture and Rural Affairs (37.5 million), and combining the bank's judgment that market forces and policy guidance may drive non-linear acceleration in the reduction of pig production capacity, it is expected that the pig farming industry will gradually enter the phase of excessive culling of sows in the third quarter of 2026, thereby leading to a reversal in the pig cycle by 2027 (in terms of profitability). It is advised to actively pay attention to farming stocks. The main points from Guotou Securities are as follows: Low-price region of Sichuan and Chongqing leading the way, recent pork prices rising Since July 28, pork prices in Sichuan and Chongqing have stabilized and rebounded, with increases of 0.9 yuan/kg and 0.8 yuan/kg, respectively, as of August 6. There are also signs of nationwide stabilization in the average pork price. Meanwhile, the monthly sales report from the leading pig farming company in Sichuan-Chongqing, Leshan Giantstar Farming & Husbandry Corporation, indicates that the number of marketed pigs in July has once again shown a month-on-month decline, with the market weight per pig experiencing a significant drop of 3.2 kg. Data from ChaoYing Consulting shows that the latest average weight of pig sales in Sichuan has decreased by 0.9 kg per pig since early July (the decline is notably greater than in other provinces), and the price difference for fat pigs has also seen a significant increase, indicating that the supply pressure on pigs in Sichuan and Chongqing has noticeably eased. It is worth noting that during the second half of last year, the Ministry of Agriculture and Rural Affairs and other central agencies began guiding a reduction in national pig production capacity. The Sichuan Provincial Department of Agriculture and Rural Affairs is still supporting the development of the pig industry through measures such as quality seed subsidies and marketing incentives, which may lead to a higher supply pressure in Sichuan compared to other provinces this year. Given that supply pressure is theoretically greater in low-price regions like Sichuan and Chongqing, the fact that there has been a supply improvement and rising prices leads the bank to predict a likely nationwide price rebound as we enter peak season. Pork prices are expected to rebound in the peak season, with short-term operational profitability for farmers Data at the national level also supports the bank's judgment regarding the rebound in pork prices and the potential for short-term operational profitability in farming. On the supply side, the number of breeding sows decreased by 1.1% month-on-month last October (according to the Ministry of Agriculture and Rural Affairs), which may alleviate the supply pressure in pig production in August and September this year. Since June, the utilization rate of breeding barns has been below historical levels, and both frozen meat inventories and slaughter weights have decreased to varying degrees, indicating that short-term inventory pressure is also improving. On the demand side, currently, 12 listed companies have disclosed their July marketing reports (with 2025 pigs accounting for about 23% of total pig sales), collectively showing a 3.6% month-on-month increase in slaughter numbers, and among them, the fat pig slaughter volume is up approximately 4.3% month-on-month. Despite the increase in supply, pork prices in July still saw an increase of 1.3 yuan/kg, reflecting that pork consumption has seen some recovery. Considering the impending autumn cooling, the start of school, and stocking up for the double festivals, the bank anticipates that pork consumption may still have some upward momentum in the next one to two months. Moreover, from historical experience, downturns in the pig cycle often undergo multiple bottom tests, with a single prolonged loss period typically lasting around six months. The longest period of losses that began in the first half of the year was 7.5 months in 2023. Currently, following a loss period that started in early February, it has lasted for six months. The bank comprehensively assesses optimism that this year's price rebound may lead to a short-term recovery in farming profitability. Significant cash flow pressure remains, and capacity reduction can be expected to continue As of August 6, the national average pig price is approximately 10.34 yuan/kg, and the pig farming sector continues to experience cash flow deficits. Based on the quarterly performance forecasts of listed companies, the bank estimates that several public pig companies have seen their debt-to-asset ratios rise to high levels, with three companies possibly exceeding 80%. The overall cash flow pressure facing the industry is evidently more severe. Furthermore, the price rebound and profitability in pig farming at the beginning of this year have temporarily delayed the consolidation of sow production capacity, which may raise concerns over pig supply by the end of this year and the beginning of next. Additionally, post-festival seasons have often seen a decline in pork consumption. The bank expects that the sustainability of this price rebound will be limited, as brief improvements in profitability are unlikely to lead to significant enhancements in industry cash flow, with pig production capacity still likely to continue to be reduced. The recent decline in piglet prices and the sluggish prices for culled sows further support this observation. Risk Warning: Statistical deviations in third-party data, Shenzhen Agricultural Power Group's price performance not meeting expectations, major epidemics or natural disasters, and corporate operational data below expectations.