Orient Securities released a research report stating that under the pressure of capacity transmission, current hog prices have fallen to around RMB 11/kg, while the price of 7kg weaned piglets is approximately RMB 200/head, indicating the industry is in a phase of widespread losses. Historical trends suggest that when both hog and piglet prices are low, the industry is likely to initiate market-driven capacity reduction. Currently, capacity reduction is primarily driven by large-scale farms eliminating inefficient capacity and small-scale farmers exiting due to losses. Mid-sized farms remain optimistic about 2026 prospects, showing a tendency to replenish capacity against the trend. However, given that deep industry losses are expected to persist for at least another quarter, counter-trend expansion poses significant financial pressure. Recently added sows may accelerate capacity reduction in the future.
**Key Views from Orient Securities:** 1. **Pigs: Accelerated Capacity Reduction** Weak current and expected hog prices, coupled with policy-driven factors, are accelerating capacity reduction in the swine farming industry. With hog and piglet prices recently hitting annual lows, further declines are anticipated (Q1 2026 hog supply is projected to remain high). Historically, such low-price phases trigger market-driven capacity cuts. Additionally, policy restrictions on leading group farms further reinforce this trend, supporting long-term price recovery.
2. **Continued Sow Reduction in November** Third-party data on breeding sows shows: - **Yongyi:** Month-on-month (MoM) decline of 0.14%, with large/group farms down 0.52%, mid-sized farms up 0.99%, and small farms down 0.43%. - **Gang Lian:** MoM decline of 0.38%, with large farms down 0.37% and small/medium farms down 0.78%. Mid-sized farms remain optimistic about 2026, but financial strain from prolonged losses may reverse recent sow additions into accelerated capacity cuts.
3. **Natural Rubber: Limited Restocking Cycle** As of December 5, domestic natural rubber futures stood at RMB 15,065/ton, down 2.24% week-on-week (WoW). A new restocking cycle has begun, with Qingdao rubber inventories rising by 12,500 tons WoW to 477,700 tons (general trade stocks up 12,000 tons to 404,100 tons; bonded stocks up 500 tons to 73,600 tons). Overseas peak production season is driving accelerated domestic restocking.
**Investment Recommendations:** 1. **Swine Farming Sector:** Policy and market forces are jointly driving capacity reduction, benefiting long-term performance. Key stocks: Muyuan Foods (002714.SZ), Wens Foodstuff Group (300498.SZ), Shennong Group (605296.SH). 2. **Downstream Sectors:** Rising hog inventories boost feed and animal vaccine demand. Smooth capacity reduction could shift profits downstream, lifting animal health stocks. Key stocks: Haid Group (002311.SZ), Ringpu Bio-Technology (300119.SZ). 3. **Crop Sector:** Firm grain price trends support planting/seed industry fundamentals. Key stocks: Jiangsu Provincial Agricultural Reclamation and Development (601952.SH), Heilongjiang Agriculture (600598.SH), Hainan Rubber (601118.SH), Longping High-Tech (000998.SZ). 4. **Pet Sector:** Growth in pet food demand, price hikes, overseas expansion, and rising brand recognition favor leading players. Key stocks: Wanpy (301498.SZ), Zhongpet (002891.SZ), Petpal Pet Nutritionals (300673.SZ).
**Risk Warnings:** Livestock prices underperforming expectations; large-scale disease outbreaks; volatile raw material costs.
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