Recently, the spot price of live pigs has continued to rise, and the pig price in some parts of the country has risen to more than 16 yuan/kg. At the same time, the price of pig futures has been climbing, and the latest price has also risen by more than 16% from the low point before the Spring Festival.
Analysts said that since the second half of 2023, pig production capacity has been gradually reduced, leading to a decrease in pig supply. In addition, according to the normal demand law, the demand for pigs in the second half of the year will be better than that in the first half of the year. The market is optimistic about the future pig market, attracting some breeding groups to engage in secondary fattening operations, diverting part of the market supply, and thus driving up the price of pigs. Although many insiders believe that the pig price will keep rising in 2024, they still need to be alert to the secondary fattening operation and the restrictive effect on the price caused by the excessive price rise caused by the rising market optimism.
Secondary fattening into the market to improve short-term fundamentals
After the Spring Festival, the pig market is full of spring. According to the ten day data released by the National Bureau of Statistics, as of the first ten day of May 2024, the price of foreign three yuan pigs is 15.0 yuan/kg, up 9.5% from 13.7 yuan/kg in late February.
The price of pig futures, which responded to market expectations in advance, also bottomed out before the Spring Festival. Wenhua Financial data showed that as of the close of May 21, the main contract of pig futures had closed at 18270 yuan/ton, up 16.30% from the low of 15710 yuan/ton on February 7.
"After a year of losses in the pig breeding industry, the price of pigs finally rebounded after the Spring Festival this year." Kong Hailan, a researcher of agricultural products of Everbright Futures, told China Securities News that the start of this round of pig prices was due to the improvement of market confidence after the continuous decline of pig production capacity.
From the perspective of terminal quotation, the price of live pigs in some parts of the country has even risen above 16 yuan/kg. On May 21, the highest quotation once reached 16.6 yuan/kg.
Although the pig price keeps rising as a whole, the process is not easy. According to the data released by the National Bureau of Statistics, the price of foreign three yuan pig stopped falling and rebounded in late February, reaching 15.3 yuan/kg in the first ten days of April, falling back to 14.9 yuan/kg in the middle of April, and rising again to 15.0 yuan/kg in the first ten days of May.
"The rise in pig prices in both March and May is largely related to the secondary fattening in the market." Wang Yanan, an analyst in the pig industry of Zhuochuang Information, told reporters that the pig production capacity of retail investors and small and medium-sized farms in northern China is generally reduced, and the vacancy rate is high. The market is optimistic about the future pig market, However, due to the longer feeding cycle of sows and piglets and the increased risk, the secondary fattening operation has become more common in the near future.
The so-called secondary fattening refers to that farmers buy healthy pigs that are normally sold for fattening again, and earn the price difference of the price increase by buying at a low price and selling at a high price.
Wei Xin, chief analyst of the futures breeding industry of CSCI, said: "Recently, the pig market has recovered to a certain extent. The fundamental reason is that the gradual realization of capacity reduction in the second half of 2023 has led to a decrease in pig supply. In addition, the market has optimistic expectations for the pig market in the second half of the year, which has also attracted some breeding groups to engage in secondary fattening operations, diverting part of the market supply. "
Wang Yanan introduced that in this round of secondary fattening, the standard pigs in the 90kg - 125kg weight range were mainly supplemented. Due to the high price of secondary fattening pigs, the price of normal pigs was also driven up. In addition, some secondary fattening households supplemented 120kg - 125kg standard pigs, which formed a competitive relationship with slaughter enterprises when purchasing standard pigs, further pushing up the price of live pigs.
"The secondary fattening participants entered the market, which not only increased the demand for standard pigs, but also reduced the supply to the market, and improved the fundamentals of the short-term pig market, so the spot price was supported." Kong Hailan said that in May, with the overall upward trend of the agricultural product sector, the prices of corn and soybean meal at the feed raw material end continued to rise, and the cost side supported the pig price. In addition, a number of stocks in the A-share breeding plate have rebounded recently, and the market optimism is rising, which once again forms a positive stimulus to the spot price of pigs.
Significant capacity reduction in the industry
In the interview, the reporter learned that industry insiders generally attributed the reason for this round of pig price rebound to the obvious capacity reduction of the industry.
From January 2023, the number of breeding sows on hand has entered a declining range, and since then, the pig production capacity has continued to decline. According to the data of the Ministry of Agriculture and Rural Affairs, by the end of March 2024, the number of breeding sows in the country will be 39.92 million, a year-on-year decrease of 7.3%, equivalent to 102.4% of the normal population of 39 million, which is in a green and reasonable area for capacity regulation. In addition, according to the National Bureau of Statistics, the national pork output in the first quarter of 2024 will be 15.83 million tons, down 0.4% year on year.
"Judging from the currently released data of breeding sows, the capacity reduction is relatively strong, and the supply side situation has significantly improved. According to the normal demand law, the demand for live pigs in the second half of the year will be better than that in the first half of the year, and the demand side is expected to support the price of live pigs." Kong Hailan said that although the terminal demand for live pigs is relatively stable at present, there has not been a significant increase in the early stage. However, if the demand increases in the future, the demand side will resonate with the supply side. At that time, the space above the pig price is worth looking forward to.
From the perspective of pig price performance, Wang Yanan believes that "the inflection point of this round of 'pig cycle' has appeared by the end of February 2024."
Wang Yanan explained that, on the one hand, although the southern region is still abundant in pig sources, the effect of capacity reduction in the northern region has gradually emerged in the early stage, and the price of live pigs has risen in shock and driven the national average price up. According to the data monitored by Zhuochuang Information, the average transaction price of lean pig across the country has risen from 13.48 yuan/kg at the end of February to 15.75 yuan/kg on May 20, with a cumulative increase of 16.84%. On the other hand, at least two rounds of centralized secondary fattening and fence filling operations have been carried out in the northern region, which reflects the high vacancy rate.
Wei Xin said that there was a big difference in the form between the subsequent pig price fluctuations and the "pig cycle" fluctuations before 2019, and the previous experience could not be transferred directly. Wei Xin said: "This round of pig price rise is relatively certain, and it comes from the capacity reduction in 2023. But once the pig price recovers and the capacity starts to recover, the corresponding upward space of pig price will also be limited. In addition, under the continuous investment since 2019, the expected rate of return on investment of the whole pig industry has declined, and there is room for periodic and seasonal profits, but it is still difficult to form a super long profit cycle across the year. "
Be optimistic about the market situation in the year
With the recent rise in pig prices, the mentality of the breeding community has also undergone some subtle changes.
"After the pig price continued to rise, the farmers' bullish mood rose, and the enthusiasm of secondary fattening to enter the market rose again." Kong Hailan said, but after the losses of last year, the participants in secondary fattening tended to be cautious, and the overall focus was on "short in and short out".
Wei Xin also said that since this year, the secondary fattening group has been mainly based on the mode of "bottom hunting and not chasing up", and the arrival of summer may limit the efforts of the secondary fattening group to chase up. In addition, influenced by the market experience in 2023, although the breeding side is optimistic about the second half of this year, it is cautious about the rise of pig prices. Therefore, more and more enterprises may seek futures, "insurance+futures" and other ways to carry out risk management.
From the situation of piglet stocking, Kong Hailan said that with the continuous rise of pig prices, the willingness of the breeding end to stocking piglets has improved in the near future.
Looking ahead to the future, Wang Yanan believes that in the short term, this round of pig price increase is mainly driven by the secondary fattening in the north. Because some of the pigs at the time of secondary fattening have been overweight, the breeding cycle will be relatively short. In June, secondary fattening pigs may appear in succession, and the supply side may increase for a short time, which may limit the rise of pig prices, There may be temporary stop of rise and fall in some areas. In addition, because some pigs in the south are sourced or transferred to the market in the north, the rise in pig prices may also be suppressed to some extent.
However, from a long-term perspective, Wang Yanan said that due to the declining supply side, this year's pig prices will mainly rise. "The second fattening may continue to occur in the later period. When the pig price continues to rise, choose to market, increase market supply, curb the rise in the price of pigs, and conduct the second fattening after the pig price falls. Therefore, on the whole, the price of pigs this year may show a fluctuating rise."
From the performance of surrounding varieties, Kong Hailan said that at present, all varieties in the agricultural product plate are showing strong performance, which also has a certain impact on the pig market. It is expected that the pig price will continue to rise, and is expected to reach the highest level of the year in the peak demand season of the fourth quarter.
Wei Xin believes that the upward trend of this round of pig prices may be mainly reflected in the second and third quarters, and the fourth quarter will maintain high volatility or shock adjustment. "At present, the market is generally optimistic about the pig market this year, and once the sentiment rises, the price will rise excessively, and the follow-up may face the risk of continuous adjustment," Wei Xin said.
