The hog farming industry's supply-demand dynamics are improving, though short-term oversupply persists and is expected to pressure prices through H1 2026, prolonging sector-wide losses. Production costs remain the critical factor determining hog enterprises' ability to achieve excess returns and sustain long-term growth, especially during cyclical downturns. Rapid scaling in hog farming is reshaping industry patterns, weakening the post-cycle characteristics of animal healthcare.
For feed producers, elevated livestock inventories in 2026 should support demand, while aquatic feed maintains stable operations amid high base effects and rational farming practices. Dongxing Securities outlines three key investment themes:
**Theme 1: Hog Farming – Gradual Capacity Reduction Awaits Cyclical Turnaround** Persistent oversupply will likely keep hog prices depressed in early 2026, extending industry losses. Market forces (price floors and losses) and policy-driven capacity adjustments are jointly driving deeper production cuts. Supply pressures should ease in H2 2026 amid steady demand, improving the supply-demand balance. Post-African Swine Fever, industry structure has shifted toward scaled operations and temporary smallholders, resulting in muted capacity fluctuations and narrower price volatility.
Cost leadership will increasingly differentiate performers, with efficient players sustaining moderate expansion while outdated capacity exits. Valuations currently offer downside protection, with sector fundamentals poised for recovery. Top picks include Muyuan Foods (002714.SZ), DEKON AGR (02419), Wens Foodstuff (300498.SZ), Shennong (605296.SH), and Tiankang (002100.SZ). Investors may also monitor Zhengbang Tech’s (002157.SZ) asset injection progress.
**Theme 2: Feed & Animal Healthcare – Post-Cycle Traits Fade; Focus on Innovation & Globalization** *Animal Healthcare:* Scaling hog farms diminish the sector’s cyclicality, shifting competition toward R&D-driven platforms. During 2026’s price trough, firms lacking innovation face sustained pressure, while leaders like Pulike (603566.SH), Keqian Bio (688526.SH), and Biology (600201.SH) can leverage new pipelines to gain share.
*Feed:* High livestock inventories support 2026 demand, though domestic competition hinges on cost control and precision management. Overseas expansion offers growth potential, with Haid Group (002311.SZ) well-positioned to replicate domestic success globally.
**Theme 3: Pet Food – Tariff Impacts Transient; Domestic Brands Rising** While 2025 tariff adjustments reshaped global supply chains, diversified production enhances resilience. China’s market continues steady growth, with local brands gaining share through premiumization and health-focused innovations. Top picks: Zhongpet (002891.SZ), Petpal (300673.SZ), and Guabi Pet (301498.SZ).
**Risks:** Livestock price volatility, slower capacity reductions, disease outbreaks, and extreme weather events.
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