Live pig futures fall to new lows, pork stocks rise! Institutions say "short-term supply pressure still exists"

China Jingwei, April 7 — On the 7th, during intraday trading, the main hog futures contract fell by more than 3%, breaking below 9,200 yuan/ton and hitting a new low since listing.

Wind screenshot, same below

As of the midday close, the main hog futures contract quoted 9,265 yuan/ton, down 2.32%.

The pork sector moved higher abnormally during the session. Hualun Shares and Juxing Agriculture & Animal Husbandry hit the daily limit up; Longda Food (rights protection), Lihua Shares, and Dayu Biotech also rose in tandem. For related ETFs, the Grain ETF of GF ((159587)) rose 1.63%, with trading volume of 40.98 million yuan; the Breeding ETF of E Fund ((159172)) rose 2.30%, with trading volume of 15.7813 million yuan.

On April 1, the National Development and Reform Commission, the Ministry of Commerce, and the Ministry of Finance announced that they would carry out the second batch of central frozen pork reserve reserve-taking this year, and required localities to coordinate the reserve-taking at the same time, so as to better play the role of reserves in regulation. Next, the NDRC and other departments will continue to closely monitor developments in the hog market, increase the scale of reserve-taking, strengthen comprehensive capacity regulation, guide farms and producers to reasonably plan production and operations, and promote the steady operation of the market.

A research report from Nanhua Futures states that the second round of reserve-taking will be launched this year, but pig prices are still stuck in a difficult bottoming-out situation. As of April 3, the national average hog price fell to 9.06 yuan/kg, industry losses per head for self-breeding and self-rearing are approaching 400 yuan, and piglet sales have also already fallen into losses. On the supply side, large stocks of heavy hogs held by small farmers remain unresolved, while the inventory of breeding sows has continued to show positive month-on-month growth for two consecutive months, meaning the de-stocking of capacity is still far from meeting targets. On the demand side, demand is extremely weak: slaughter enterprises’ fresh sales rate is only maintained at around 50%, channels passively accumulate inventory, and frozen product warehouse utilization has surged rapidly to over 21%, setting the fastest inventory accumulation growth rate in recent years.

“Currently, hog prices continue to decline, and overall, supply-side pressure may still leave room for prices to fall further.” Looking ahead, a research report from Guojin Securities mentions that from the supply side, April is expected to see a slight increase in total slaughtered-out volume; near term, supply pressure for hogs still remains. Combined with the seasonal off-peak period, hog prices still have room to fall. On the policy side, proactive capacity reduction may continue to be pushed forward; at the same time, the sector’s continued losses are a positive for the logic of capacity reduction and the rise in hog prices next year.

Guojin Securities’ analysis says that in the short term, hog prices still have room to decline. Recently, industry capacity has already been reduced somewhat under policy regulation and supply pressure; meanwhile, industry prices have already fallen below the full cost line. It is expected that overall losses will drive capacity reduction, and the sector’s sentiment has bottomed out and stabilized. In the medium to long term, the hog farming industry still has relatively good core profits; and after African swine fever, during the industry’s rapid expansion, many companies still expand capacity in low-quality ways. The industry cost variance remains huge, and leading companies have sufficient excess profits to release. It is recommended to prioritize high-quality companies with lower costs.

Citing that pig prices continue to probe downward, HuaFu Securities said that piglets and the fattening segment are already in a state of full-scale losses. With capacity regulation policies being advanced as well, expectations for industry capacity reduction are increasing, which may help push up the long-term hog price core level, and low-cost, high-quality pig enterprises will obtain excess returns. (China Jingwei APP)

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