According to Huachuang Securities, capacity is accelerating its depletion, and forward-looking positioning at the bottom is advisable, with efficiency preferred over growth and quality preferred over scale, as learned from a research report.

Based on data from the National Bureau of Statistics, as of the end of June, the national breeding sow herd stood at 37.80 million head, a year-on-year decrease of 2.63 million head, or 6.5%, with the decline widening by 3.2 percentage points from the first quarter. In addition, data from third-party institutions such as Mysteel and Yongyi Consulting show that since the third quarter, foundational production capacity has also been accelerating its depletion. Although from the current supply-demand fundamentals of the industry, pig prices may continue to fluctuate below the cost line for some time, this is also building momentum for a subsequent cycle reversal, and the longer the consolidation and bottoming-out period, the more thorough the capacity clearance, and the higher the certainty of a subsequent reversal. Referring to multidimensional data such as breeding sows and piglets, from a rhythm perspective, the bank expects that the significant effect of supply contraction or the profitability inflection point for pig prices will most likely appear in 2027Q2, but the current sector valuation is at a low level, and it is recommended to pay attention to allocation opportunities in the live hog sector. The main views of Huachuang Securities are as follows:

Slaughter Volume: In August, the total slaughter volume of 18 sample pig enterprises increased by 7.43% year-on-year and 4.98% month-on-month

In August, the total live hog slaughter volume of 18 sample pig enterprises including Muyuan and others was 17.0884 million head (among them, Muyuan Foods, Wens Foodstuff Group, Juxing Agriculture and Animal Husbandry, Shennong Group, Jingji Zhinong, Dabeinong, Lihua Holdings, and Dekang Agriculture and Animal Husbandry, these 8 pig enterprises, reported commercial hog slaughter volume, the same below), an increase of 7.43% year-on-year and an increase of 4.98% from July month-on-month. Among them, the top 5 by slaughter volume were Muyuan Foods, Wens Foodstuff Group, New Hope, Dekang Agriculture and Animal Husbandry, and Zhengbang Technology, with slaughter volumes of 7.03 million head, 2.9735 million head, 1.3322 million head, 935,000 head, and 867,900 head respectively. The top 5 by year-on-year growth rate of slaughter volume were Shennong Group, Xinwufeng, Aonong Biological, Jinxinnong, and Zhengbang Technology, with growth rates of 116.20%, 52.99%, 38.71%, 31.57%, and 29.60% respectively.

Average Sales Price: In August, the average sales price of commercial hogs of 16 sample pig enterprises was 10.84 yuan/kg, down 21.87% year-on-year and up 0.13% month-on-month

In August, the average selling price of commercial hogs of 16 sample pig enterprises including Muyuan and others was 10.84 yuan/kg, down 21.87% year-on-year and up 0.13% month-on-month. Among them, the top 5 pig enterprises by selling price were Dongrui Shares, Jinxinnong, Jingji Zhinong, Zhengbang Technology, and Lihua Holdings, with prices of 12.16 yuan/kg, 11.64 yuan/kg, 11.50 yuan/kg, 11.14 yuan/kg, and 11.12 yuan/kg respectively, while Tiankang Biological had the lowest selling price at 9.61 yuan/kg. Among the 16 sample pig enterprises, 9 had selling prices above the average price (Wens Foodstuff Group, Juxing Agriculture and Animal Husbandry, Zhengbang Technology, Dongrui Shares, Jingji Zhinong, Jinxinnong, Dabeinong, Lihua Holdings, and Dekang Agriculture and Animal Husbandry), and 7 had selling prices below the average price (Muyuan Foods, Shennong Group, Xinwufeng, New Hope, Tianbang Food, Huatong Shares, and Tiankang Biological).

Average Slaughter Weight: In August, the average slaughter weight of commercial hogs of 8 sample pig enterprises was 126.13 kg

In August, the average weight of commercial hogs of 8 sample pig enterprises including Muyuan and others was 126.13 kg (if considering data comparability, the average weight of commercial hogs of these 5 pig enterprises including Muyuan Foods, Shennong Group, New Hope, Dabeinong, and Lihua Holdings was 124.78 kg, down 0.05% year-on-year and up 1.08% month-on-month). Among them, Juxing Agriculture and Animal Husbandry had the highest average sales weight at 131.23 kg, up 1.40% month-on-month, followed by Shennong Group with an average weight of 131.00 kg, up 1.18% month-on-month. In addition, pig enterprises with weights above the average weight also included Dekang Agriculture and Animal Husbandry (129.58 kg, up 0.41% month-on-month) and Muyuan Foods (127.80 kg, up 1.81% month-on-month). There were 4 pig enterprises with weights below the average weight. Among them, Wens Foodstuff Group weighed 124.36 kg, up 0.57% month-on-month, New Hope weighed 119.29 kg, up 1.23% month-on-month, Dabeinong weighed 122.64 kg, up 1.40% month-on-month, and Lihua Holdings weighed 123.14 kg, down 0.20% month-on-month. In August, the slaughter weight of most enterprises turned to varying degrees of increase after four consecutive months of weight reduction.

Live Hog Industry: The Entire Industry Chain Continues to Be in a State of Comprehensive Loss, and the Degree of Loss Has Intensified Again

According to the National Bureau of Statistics, as of September 20, the national average selling price of commercial hogs was 10.70 yuan/kg, down 2.7% month-on-month and down 17.7% year-on-year. According to Yongyi Consulting, as of September 22, the selling price of weaned piglets was 130 yuan/head, down 9.7% month-on-month and down 44.9% year-on-year. In addition, as of the third week of September, according to Yongyi Consulting monitoring, the profit from selling commercial hogs for self-breeding and self-raising enterprises was -193.23 yuan/head, having been in loss for 32 consecutive weeks, and the per-head profit from selling piglets was -150 yuan/head, having been in loss for 27 consecutive weeks. In terms of weight, as of September 24, according to Yongyi Consulting, the industry's average slaughter weight was 128.82 kg/head, slightly down from the high level, and at the highest level since the same period in 2018. In addition, according to China Agricultural Information Network, as of September 18, the national average post-slaughter weight in 16 provinces was 88.69 kg, showing a volatile upward trend since late August. Furthermore, as of mid-September, the national utilization rate of secondary fattening pens was 36.27%, down 9.1 percentage points month-on-month and down 3.9 percentage points year-on-year. As of September 24, the frozen product inventory rate was 25.49%, showing a slow destocking state since mid-June, but the frozen product capacity utilization rate is still at a relatively high level compared with the same period in history. Risk warnings: fluctuations in live hog prices, sudden large-scale uncontrollable epidemics, major food safety incidents, systemic macroeconomic risks, and trade frictions leading to sharp fluctuations in grain prices.