China Galaxy Securities released a research report reiterating its focus on the dual strategy opportunities within the hog farming industry. Considering the breeding sow inventory and farming efficiency, the bank anticipates a year-on-year decline in hog prices for 2026, potentially interspersed with periodic rebounds. The report advises a comprehensive focus on high-quality hog farming enterprises demonstrating significant marginal cost improvements and sound financial health, taking into account both policy-driven and loss-induced capacity reductions. The pet food industry is in a growth phase, with market share concentration trending towards premium enterprises. Additionally, opportunities exist in the post-cycle segments of the farming supply chain and animal vaccine-related companies. The supply side for yellow-feathered broilers remains relatively constrained, coupled with expectations of demand-side recovery. The key viewpoints from China Galaxy Securities are as follows: China's CPI increased by 0.7% year-on-year in November, while the agricultural product trade deficit widened by 4%. The nation's Consumer Price Index (CPI) rose 0.7% year-on-year in November, with the food component up 0.2% (pork prices down 15% year-on-year). On a monthly basis, CPI decreased by 0.1%, while the food component increased by 0.5% (pork prices down 2.2% month-on-month). In November, China's agricultural product imports reached $16.21 billion, up 2.9% year-on-year, while exports were $10.04 billion, up 2.3% year-on-year, resulting in a trade deficit of $6.18 billion, which expanded by 4% year-on-year. The agriculture index underperformed the CSI 300 in December. In December, the agriculture, forestry, animal husbandry, and fishery index declined by 0.95%, while the CSI 300 index gained 2.56% during the same period. Comparing sub-sector indices, animal health (+5.35%) was among the top performers, whereas fisheries (-2.01%) and aquaculture (-3.81%) lagged behind. Hog Farming: Persistent losses continued in December, with capacity reduction ongoing. As of December 10, 2025, the hog price was 11.81 yuan/kg, down 27.4% from the end of 2024. By December 26, breeding profits for self-sufficient farms and those purchasing piglets stood at losses of 130 yuan/head and 163 yuan/head, respectively. Persistent industry losses are expected to accelerate the capacity reduction process. By the end of October, China's breeding sow inventory was 39.9 million head, down 1.1% month-on-month. Regarding the 2025 hog price trend, the bank anticipates the annual average price to decline year-on-year, with the differentiation lying in the continuous optimization of production costs by superior enterprises, potentially leading to better-than-expected breeding profits. For 2026, the bank expects the annual average hog price to also trend lower year-on-year, though prices may see rebounds within the year, influenced by the severity of winter diseases. The bank recommends actively focusing on hog farming enterprises that lead or show continuous improvement in cost control, maintain relatively healthy finances, and are reasonably valued. Pet Food: November exports saw both volume and price decline, with average price hitting a decade low. In November, China's pet food export value was 838 million yuan, down 3.81% year-on-year. Export volume was 33,400 tons, up 11.23% year-on-year, while the average export price was 25.08 yuan/kg, down 13.51% year-on-year, reaching a new low for the past ten years. For the cumulative period from January to November, the export value was 9.196 billion yuan, down 4.18% year-on-year; export volume was 323,600 tons, up 6.96% year-on-year; and the average export price was 28.42 yuan/kg, down 10.41% year-on-year. Risk warnings include the potential for livestock and poultry prices to fall short of expectations, risks associated with animal diseases, fluctuations in raw material prices, policy risks, and risks from natural disasters.
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