Pacific Securities released a research report indicating that the recent rebound in hog prices may be coming to an end, with industry losses persisting and capacity reduction momentum expected to strengthen.
Last weekend, the operating rate of large-scale slaughter enterprises nationwide was 34.49%, up 4.87 percentage points year-on-year. In the previous week, the average post-slaughter weight of hogs in 16 provinces and cities was 89.21 kg/head, down 2.07 kg year-on-year. According to official data, by the end of September, China's breeding sow inventory stood at 40.35 million, down 30,000 from the previous month and 370,000 from the peak at the end of last year. The industry has recorded losses for eight consecutive weeks, with recent losses at a moderate level.
The hog sector faces a triple pressure of declining market prices, rising disease risks, and policy guidance, which is expected to accelerate capacity reduction. Recent data shows a slight rebound in hog prices, while piglet prices stabilized. The national average hog price was CNY 11.91/kg last weekend, down CNY 0.58 from the previous week. Meanwhile, the average price of 15kg piglets rose CNY 0.48 to CNY 23.62/kg. Slaughter operations remained stable, with hog weights leveling off. In October, 14 listed companies reported a significant year-on-year increase in hog sales.
The industry continues to suffer losses, exacerbated by disease risks and policy adjustments. Although hog production capacity has declined slightly, it remains at a relatively high level historically. The breeding sow inventory of 40.35 million at the end of September reflects this trend. Disease risks have risen due to increased rainfall in September and October, complicating African swine fever prevention. Additionally, a recent government meeting signaled further policy-driven capacity reductions.
With valuations at historic lows, long-term investment opportunities are emerging in the sector.
**Poultry Sector:** Broiler prices have been fluctuating at low levels, with potential for a mid-term rebound. Chicken seedling prices remained high, while broiler prices stayed low. The industry's production capacity has reached a historic high, with parent stock inventories rising in October. However, losses per bird widened last week. Over the next year, reduced supply in the commercial segment may support price recovery. Valuations remain attractive, offering high investment safety margins.
For yellow-feathered broilers, prices have risen recently due to seasonal demand, while production capacity remains low. Tight supply is expected to persist into early 2026, supporting further price increases. Companies like Wens (300498.SZ) and Lihua (300761.SZ) are well-positioned.
**Animal Health Sector:** Key antibiotic prices remain elevated, with optimistic Q3 earnings expectations for animal health companies. Tiamulin and tilmicosin prices rose in Q3, reaching near one-year highs. Domestic cat vaccine sales grew significantly, with further growth expected as localization accelerates. Companies like Ruipu Biology (300119.SZ) are worth monitoring.
**Risks:** Unexpected disease outbreaks, fluctuations in livestock and feed prices, and policy changes could impact forecasts.
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