Pork prices on the mainland experienced a wave of twists and turns in 2020, with half of the listed pig breeding companies achieving year-on-year net profit growth of more than 200% attributable to the mother.
According to China First Financial, from June 2017 to May 2019, the price of live pigs on the mainland has been maintained at around 15 yuan (RMB, same below). Since then, pig prices have started to climb.
The reason for the rise in pig prices was due to the outbreak of African swine fever on the mainland, which killed and buried a large number of pigs, resulting in a significant drop in the number of pigs in stock on the mainland, directly leading to soaring prices.
After entering 2020, the mainland pork prices continued the trend of 2019, but the whole year pig price trend experienced “three twists and turns”.
According to the pig price system network, in mid-February this year, pig prices rose to the highest point of the year, close to 40 yuan/kg. Then it declined. By the middle of May, hog prices touched the lowest point of the year, after which they rose again to the peak of prices for 7 weeks in a row. Since the fourth quarter, hog prices have fallen slightly, but due to the traditional peak consumption season, the end of the year saw a rising tide of hog prices again.
The rise in pork prices directly led to a rise in the share prices of mainland listed pig enterprises. Data service provider Wind data shows that in the first three quarters of this year, 12 of the 24 enterprises in the pig sector achieved a year-on-year increase of over 200% in net profit attributable to the mother, accounting for 50% of the total. Only 5 companies recorded a year-on-year decline in net profit. The huge enrichment effect of pig farming is beyond the reach of other industries.
Among them, Tianbang, Zhengbang Technology and Shepherd Plains ranked the top three in terms of profit increase, with a year-on-year increase of 235 times, 107 times and 14 times respectively.
But since September, with the acceleration of the downward movement of pig prices, the field funds quickly withdrew from the battlefield. wind data show that since September, the pig sector “all wiped out”, the average share price fell by about 20%, almost wiping out the year’s gains.
An analyst of the agricultural sector said: “Pig prices depend largely on supply and demand, and the performance of listed companies and consumer spending is clearly lagging. But capital market performance is ahead of schedule. The process of replenishing production capacity is long, and the high running pig price will allow the enterprises of large-scale breeding to release absolute profit, but the high light moment is not long, and it is more necessary for the enterprises to use management wisdom to ‘iron out’ the risk of pig price fluctuation. Once the price inflection point appears, the capital is cautious of the pig sector, not only out of concern for shrinking profits, but also for the unpredictable valuation contraction generated by the future volume to compensate for the price of the game”.
For next year’s pork market trend, the industry is expected to 2021 pig price shock downward, the industry reshuffle continues.
The aforementioned analysts believe that the enrichment effect of pig farming has made the listed pig enterprises expand their production to become the industry trend in 2020. Leading enterprises such as New Hope, Zhengbang Technology and Shepherd Plains are expanding production through fixed increase and direct investment. Will the massive expansion of production make the pig price fall rapidly in 2021 and eat up the profits of listed pig enterprises significantly?
According to the Ministry of Agriculture and rural Affairs at the end of November, the current pig stock and sow stock have recovered to about 88% of the normal year.
The analyst expects: “From a whole cycle, the high point of hog prices next year will not be higher than this year’s, and the downward trend is obvious, but the downward space is not big. From the supply-demand contradiction eases and returns to the regular supply level, and then starts a new round of de-capacity, this process takes about two years.” But “the shrinking profits of large-scale breeding enterprises is certain, as long as the pig price does not fall below 20 yuan / kg, the enterprise still has money to earn.”
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