(Report producer/author: Sealand Securities, Cheng Yicheng) i. The pig cycle revaluation since 2018 1.1 The pig cycle revaluation since 2018: The price index of the major pig cycle since 2018, the pig price reached the highest level in history, and the vibration was the most severe in history.The mismatch of supply and demand of live pigs leads to the periodic fluctuation of pig price. Since 2002, there have been 5 pig cycles in total, and each cycle lasts 3-4 years.In this cycle, hog prices rose from June 2018 to November 2019, with an increase of +262%, and the highest weekly average pig price reached 40.9 yuan/kg. Subsequently, hog prices fluctuated at high levels for 13 months. From January 2021 to October 2021, hog prices fell 74%, and the lowest weekly average pig price was 10.78 yuan/kg.African Swine fever (ASF) is the most important factor influencing this pig cycle. Asf causes a sharp decline in sows and hogs, and fundamentally affects the trend of pig prices.In the early stage of ASFV, epidemic pigs and diseased pigs reduced pork consumption confidence, and pig prices declined at the initial stage. Subsequently, due to the substantial reduction in the production capacity of breeding sows, SWINE fever led to panic selling of pigs, shortage of pigs in the market, and pig prices rose rapidly, with the highest price reaching 40.98 yuan/kg in November 2019.In early 2020, due to the impact of COVID-19, a stop-work order and pork slaughter and transportation control were implemented, and the pig price rose to 38.32 yuan/kg in February 2020.With the improvement of the epidemic, the supply side of the market increased, and the pig price dropped to 27.61 yuan/kg in June 2020.After 20q2, the number of breeding sows is increasing, and the production capacity of hogs is recovering, rising slightly to 36.34 yuan/kg in 2020Q4 consumption peak season. After the Spring Festival, the pig price has started a trend of continuous decline.From the perspective of price variation range, the price of piglets, sows and live pigs kept the same trend, but the price of piglets fluctuated more, and after the average price of live pigs reached a high point, the enthusiasm of supplementaing fences increased, and the price of piglets increased further.Pork prices usually fall after the Spring Festival, reaching the lowest point in April-May, stabilizing in the third quarter, and rising in the fourth quarter. The price trend of piglets and sows is consistent with the price base of live pigs, but the fluctuation of piglets is more severe.The price of piglets increased from 24.82 yuan/kg in August 2018 to 75.53 yuan/kg in December 2019.In December 2019, the average price of live pigs reached the highest point. Stimulated by high breeding profits, farmers were enthusiastic about replenishment of pens in 2020. However, due to the reduction of sow productivity due to ASF, the demand for piglets was further increased, and the price of piglets climbed to 109.07 yuan/kg in September 2020.However, with the rapid recovery of the stock, the recovery of sow production capacity reduced the demand for foreign purchase of piglets, and the price of piglets rapidly dropped to 22.45 yuan/kg in October 2021, a decline of 79%.(Report source: Think Tank for the Future) With high pig prices, the substitution effect of other meats for pork will gradually emerge.As the gap between pork supply and demand emerges, poultry consumption, as the main substitute for pork consumption, will grow rapidly. In 2019, Q4 chicken price reached a high point, and the cycle fluctuation of pigs affects the prosperity of poultry chain.Different from previous pig cycles, this round of pig prices peaked and fluctuated for 13 months, breaking the rule of previous upward cycles.In the period of high volatility, this round of pig prices were affected by the transportation control of COVID-19 in 2020, which hindered the supply of live pigs.In addition, the soaring price of corn in this pig cycle has increased the breeding cost. The price of corn has risen from 1940 YUAN/ton in August 2018 to 2,629 yuan/ton in January 2021, and remains at a high level of about 2700 yuan/ton. The rising feed cost brought by the soaring price of corn has been transmitted to the price of live pigs.1.2 Pig cycle restocking since 2018: Stock index African Swine fever (ASF) has caused a huge impact on pig production capacity, and the tight supply has led to a rapid rise in pig prices.The breeding sow stock fell rapidly from 31.45 million in August 2018 to 19.68 million in August 2019, a 37% decline.In 2018, 198 million pigs were sold in Q4 season, while the number dropped to 96.32 million in Q3 2019. Pork supply decreased, and pig prices entered an upward cycle.Buoyed by profits from high hog prices, productive sows quickly recovered to pre-ASF levels in Q2 2020, reaching a record high of 44 million head by the end of 2020.Driven by high breeding profits, pig production capacity continues to recover, and the number of breeding sows in June 2021 reached 45.64 million.According to the data of the Ministry of Agriculture and Rural Affairs, the number of fertile sows in October and November 2021 was 43.48 million and 42.96 million respectively, down by -2.5% and -1.2% from the previous month. Compared with the peak of 45.64 million in June 2021, the current sow inventory has decreased by 5.9%, but it is still higher than the 41 million recommended by the Ministry of Agriculture and Rural Affairs.In the long run, pig prices are still at the bottom of the period.The rate of fertility depletion of fertile sows has accelerated, but has not yet reached the cycle inflection point.When the cycle price reached the peak, the sow stock continued to increase and gradually cleared up in the pig price decline. From the observation of the past two cycles, the fertile sow stock decreased by 7.72% and 20.44% respectively from the high to the two W bottom in the 2009-2014 pig cycle.From 2014 to 2018, the number of breeding sows decreased by 29.19% and 40.98%, respectively.According to the data of the Ministry of Agriculture and Rural Affairs, from the breeding peak of 45.64 million head in June 2021 to the first pig price bottoming in October 2021, the breeding sow reduction rate was 4.73%. In November 2021, the sow stock was 42.96 million head, and the production capacity was reduced by 5.9%, which is still at the bottom of the cycle.1.3 Recovery of pig cycle since 2018: Profit index Under the influence of African Swine Fever, the profit in the uptrend of this pig cycle is very high, driving the rapid recovery of sow stock, and the gross profit of piglets exceeds that of previous pig cycles.Encouraged by the national policy to restore pig production capacity and driven by ultra-high breeding profits, the production capacity of breeding sows began to recover rapidly in March 2020, corresponding to the increase in pig production in 2021. From October 2019 to June 2021, the national breeding sow stock increased from 19.13 million to 45.63 million, an increase of +139%.Asf causes damage to swine breeding systems.Gilt number is difficult to meet the normal elimination of binary sow supplement, therefore many farms have chose three yuan backcross recovery capacity, but the ternary commodity sows PSY and standard binary sow, there is a big gap caused the industry as a whole PSY continued to decline, the ternary sow because of inefficient capacity makes piglet gross margin than the previous,From November 2019 to April 2021, the gross profit per head was maintained at a high level of 1000 yuan.Under the influence of ASF, the model of self-propagation and self-cultivation had stronger profitability and anti-loss ability.Under the influence of ASF, due to the dramatic reduction of sow productivity and the low level of three-yuan sow PSY, the price of piglets kept rising, leading to a widening gap in profitability between the feeding mode of purchased piglets and the self-breeding mode.At the beginning of 2021, the price of piglets was at a high level, and when the price fell, the cost of farmers/farms for outsourcing piglets remained high, which was squeezed at both ends and further deepened the losses, leading to a large gap between the profit of outsourcing piglets mode and that of self-breeding and self-breeding mode in this pig cycle.After November 2021, the pig price rebounded to some extent. After the continuous losses in the industry, the supplementary column decreased, and the price of piglets also decreased. The profit of the outsourcing piglet breeding mode was gradually better than that of the self-breeding mode.2.1 Transmission and Influence of African swine Fever (ASF) Is an acute contact, extensive hemorrhagic and severe infectious disease caused by African swine Fever virus (ASFV) infecting pigs.Pigs of all ages are susceptible to ASFV, and there are various ways of infection and transmission. ASFV can be infected by direct or indirect contact with infectious sources, or by the bite of soft ticks infected with ASFV. The virus can be transmitted to all tissues and organs of the whole body through digestive tract, respiratory tract and blood, thus causing systemic infection in pigs.African swine fever (ASF) has caused a huge impact on pig breeding industry in China.The first case of ASF was found in China on August 3, 2018, and then spread to all provinces except Hong Kong, Macao and Taiwan. By July 2019, 150 cases of ASF had occurred in cities in 31 provinces, with a total of 1.16 million pigs culled.In the process of transmission of swine fever, transregional transportation of live pigs, feeding of food leftovers, and poisoning of people and vehicles are the three main transmission routes.Under the restriction of environmental protection policy, the trend of southern pigs being raised in the north is obvious.Due to the tightening of environmental protection policies in 2015, the production capacity of pigs was shifted from south to north. The pig breeding in central, South and East China, which are under great pressure of environmental protection, was accelerated to north China and Northeast China, where the cost of feed materials is advantageous, and the trend of southern pigs being raised in the north was obvious.(Report source: Think Tank for the Future) After the outbreak of African Swine fever, the production and marketing areas, causing a great impact on pig breeding.After the outbreak of ASF, the movement of live pigs across the region was restricted, resulting in the imbalance of supply and demand in the pork market in the short term, and the price of pork rose.As for the affected areas, pigs can only be slaughtered and sold locally, and the supply is greater than the demand, causing the price of pigs to continue to fall.Farmers who delay the production of livestock continue to bear feed costs and labor costs, facing the risk of capital chain fracture.In the short term, ASF will cause heavy losses to pig farmers in the epidemic area and surrounding areas, which will have a great impact on the development of pig industry.2.2 Changes in post-ASFV era Binary sows have better reproductive performance, and after ASFV, binary sows replace three-yuan sows as the mainstream of breeding sows.A ternary sow is a cross between three breeds, while a binary sow is a cross between two breeds.Sanyuan sows have fast growth rate and high lean meat rate, while sanyuan sows have the advantage in reproductive performance.At the time of the outbreak of ASF, there was a severe shortage of binary sows in China, and many farms used three-yuan sows as breeding sows.According to the comparison of productivity indicators, the PSY of Syuan sows is only 14, and the binary sows can reach 21. Different from the old binary sows in the early stage of pig cycle industry de-industrialization, syuan sows with lower production efficiency will be eliminated first in this round of capacity de-industrialization.After the second quarter of 2021, the ratio of binary fertile sows and terrestrial-fertile sows increased significantly, reaching 79% in December. Terrestrial-fertile sows were eliminated continuously.Asf raises farming costs across the industry.The threat of ASF to the safety of the entire industry has not changed, and the epidemic prevention and control has permanently pushed up the cost of breeding industry, and increased the entry threshold and risk of breeding industry.After the occurrence of ASF, the breeding end generally increased investment in prevention and control. The biological epidemic prevention system established by pig farms and the construction of internal supporting facilities including disinfection center and transfer station increased the breeding cost. The prevention and control cost of listed companies in the head was about 0.5 yuan/jin.In view of the weak virus epidemic in the winter of 2020 and wild virus epidemic in the winter of 2021, asF variant strains are constantly threatening the pig breeding industry, and the normalization of ASF prevention and control has become a trend, and the rigid demand for disease prevention and control has become a rigid demand for pig breeding, and the cost of prevention and control is unlikely to decrease significantly in the future.The concentration of the industry continues to improve, the pig breeding industry from free-range breeding era fast forward to large-scale breeding era.African swine fever outbreak promoted farming industry threshold, speed up the breeding of model transformation and upgrade, mismatch of high strength disease prevention and control system of the first hit from the blast farms, breeding group listed with capital advantage, invest more on prevention and control system construction, strong ability to fill column, in continued to expand capacity, basically realized the market grow.With the recovery of production capacity and the increase of breeding density, the prevention and control of ASF and the prevention of ASF variant virus became more difficult. It was difficult for individual investors and small-scale farms to establish a complete system of disinfection, isolation and feed prevention and control by large breeding groups, and pig breeding entered the era of large-scale breeding.From 2018 to 2021, industry CR10 increased from 6.22% to 19.37%, and CR20 increased from 7.91% to 22.72%, with the industry concentration increasing.In September 2021, the Ministry of Agriculture and Rural Affairs issued the Implementation Plan for Regulation and Control of Production Capacity of Hogs (Interim) to regulate the stock of breeding sows and prevent large fluctuation of production capacity.It is suggested that the normal amount of breeding sows in China should be kept at about 41 million, and the minimum amount of breeding sows should not be less than 37 million.The number of fertile sows in October and November 2021 was 43.48 million and 42.96 million, respectively. According to the division of the Ministry of Agriculture and Rural Affairs, the number of sows in the end of November 2021 has been lowered from the red excessive fluctuation zone to the yellow zone, and the sow productivity has been decreasing, and the pig cycle is in the bottom fluctuation period.Market sentiment exacerbates price volatility at the bottom of the cycle.The change of market weight reflects the change of market sentiment to a certain extent. When the pig price rises, farmers tend to press the market to sell big pigs and fat pigs.Pig prices continue to fall, farmers tend to sell ahead of time to avoid losses, concentrated sales will drive pig prices continue to fall.According to the data since 2018, there is a strong correlation between market weight and pig price. In October 2021, the market price hit bottom for the first time due to the panic market caused by the rapid decline of pig price. The average weekly market weight of 119.79kg was also the lowest in the whole year.From the cycle W bottom analysis, pig prices are expected to hit bottom twice in the second half of 2022.Before the upturn of each cycle, the pig price shows a W shape at the bottom, and the pig price reaches the second bottom. The interval between the first bottom and the second bottom is about 8-11 months, and the price increases are between 10%-15%.The pig price was observed as low as 10.78 yuan /kg in October 2021, and the second bottom of the pig price in this cycle is expected to occur in the second half of 2022.In 2022, the pig breeding industry is expected to continue to face the pressure of loss. The bottom shock of pig price superimposed high breeding costs, and the capital chain has become the lifeline of the downward cycle.Under the background of high cost and low pig price in the downward cycle, it is relatively difficult for pig enterprises to raise funds, and the problem of capital chain will be amplified accordingly. Therefore, the cash flow problem of pig enterprises has attracted much attention.From 2019 to 2021, muyuan, Wen’s and other head pig enterprises will raise funds through multiple channels such as convertible bonds, private placement and medium and short-term bills to stabilize production and operation and meet capital needs.Retail investors in the industry have the characteristics of flexible production and withdrawal, and some large and medium-sized fields will face more obvious capital pressure, or will exit the market in the bottom of the downward cycle shock.Excerpt :(this article is for informational purposes only and does not represent any investment advice from us.Please refer to the original report for relevant information.)Selected report sources:.