Goldman Sachs issued its annual review of China's agricultural sector on May 1, covering 13 individual stocks across four segments: hogs, seeds, feed and additives, and fertilizers. The core conclusion is that while performance in 2025 and the first quarter of 2026 was generally weaker than expected, profit prospects for hogs, fertilizers, and some feed additives are set to improve significantly in the second half of the year.
In the hog sector, the bottoming-out process is accelerating, with a cyclical upturn anticipated in the latter part of the year. During the first quarter, the domestic benchmark hog price fell to 11.5 RMB/kg. Management at Wens Foodstuff Group indicated at an earnings conference that nearly all producers are operating at a cash loss at current price levels, leading to an accelerated exit of production capacity. The reduction in the breeding sow herd is already reflected in the data: Muyuan Foods saw a 9% decline by the end of the first quarter compared to June 2025, while Wens Foodstuff Group recorded an 8% decrease. On the policy front, the Ministry of Agriculture and Rural Affairs recently emphasized the importance of disciplined hog production capacity as a key focus for 2026, applicable to all industry participants. The logic of supply contraction is materializing.
Regarding cost reduction, leading companies have clear targets. Muyuan Foods aims to lower its all-in cost to 11.5 RMB/kg, even accounting for an estimated feed cost increase of approximately 0.2 RMB/kg (reflecting an annual corn purchase price rise of about 150 RMB/ton), from its first-quarter base of 11.9 RMB/kg. This will be achieved through measures including disease prevention and control, breeding optimization, and the application of AI technology. Wens Foodstuff Group targets an annual cost of 11.8 RMB/kg, while New Hope Group has set a target range of 11.3-11.8 RMB/kg. Although Goldman Sachs has significantly lowered its profit forecasts for the first half of the year, it maintains an optimistic outlook for the second half, anticipating that hog prices will recover as the effects of capacity reduction become apparent and the industry enters a cyclical upswing, returning the hog sector to profitability.
For the fertilizer sector, the key variable is sulfur. Due to transportation disruptions in the Strait of Hormuz caused by Middle East conflicts, domestic sulfur spot prices have surged to 6,200 RMB/ton, pushing non-integrated phosphate fertilizer producers into losses. Goldman Sachs estimates that the domestic DAP benchmark price needs to increase by at least 1,000 RMB/ton in the second half of the year to 5,500 RMB/ton (including tax) to restore sustainable operations for marginal producers. For integrated leader Yunnan Yuntianhua, benefiting from a small allocation of low-priced government-sourced sulfur (2,000-3,000 RMB/ton), exploration of phosphogypsum recycling for sulfuric acid, and procurement of alternative metallurgical sulfuric acid from local smelters in Yunnan, its gross profit per ton of phosphate fertilizer is expected to recover from 1,160 RMB/ton in the first half to 1,463 RMB/ton in the second half. Furthermore, a partial relaxation of phosphate fertilizer export quotas is anticipated after the spring ploughing season, providing additional price support.
In the urea segment, Xinlianxin received a rating upgrade based on three key factors: firstly, tight supply and demand conditions have driven an upward revision of the domestic average urea price to 1,848 RMB/ton (a 4% year-on-year increase); secondly, the commencement of new production capacity in Jiangxi and Henan is expected to boost the company's 2026 output by 27% to 5 million tons, amplifying its existing advantage of production costs being 10% below the industry average; and thirdly, spot prices for its coal chemical businesses (methanol, melamine) have risen by 27% to 100% since February, with full production operations contributing incremental profits.
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