According to the financial news app Zuotong, Huachuang Securities has released a research report stating that the price of parent generation chicken chicks has remained high, and in the case of weak downstream profitability in the industry, the upstream parent generation link is still able to raise prices continuously, further highlighting the supply-demand contradiction in the upstream chain. Short-term adjustment behaviors such as moulting delay may be difficult to make up for the import and breeding variety gap. The overall prices of the industry chain are expected to turn upwards in July, along with the transmission of upstream contradictions to downstream. From a long-term perspective, the long-term growth potential of the chicken industry has already emerged; on the other hand, compared with the previous cycle, the leading company's scale has expanded significantly, and the profit realization ability of this cycle is expected to achieve substantial growth compared with the previous one.

Brazil suspends exports due to the newcastle disease, causing a rise in chicken prices in July.

With the suspension of exports due to the newcastle disease in Brazil, the slaughter inventory has decreased, and the chicken product prices have increased in July. As for chicken chicks, according to estimates based on the data of listed companies, the prices of commodity chicken chicks are below the break-even line, but with an increase in stocking after the hottest days of the year, the prices have warmed up. As for slaughter, the price of live chickens is still weak compared to the same period last year, and it is at a 4-year low. The newcastle disease in Brazil has affected exports, but the domestic market prices have slightly rebounded.

The industry's capacity continues to expand. As for chicken chicks, the sample sales volume of commodity chicken chicks in the industry in weeks 27-30 of 2024 is 0.365 billion birds, and the cumulative sales volume in weeks 1-30 is 2.604 billion birds, a year-on-year increase of 1%. Among listed companies, Shandong Yisheng Livestock & Poultry Breeding saw a year-on-year decline in sales volume in July but a slight increase month-on-month, with an estimated sales scale of around 0.6 billion birds for commodity chicken chicks in 2024. As for meat sales volume, leading companies have actively extended their business downstream, and processed meat products have seen rapid growth. The product structure has been optimized, further weakening the impact of the cycle. After Shandong Xiantan's Zhucheng project is fully completed and put into operation in 2024, the slaughter volume of broilers will reach 0.25-0.27 billion birds, and the meat processing capacity will reach 0.7 million tons, doubling the company's production capacity.

Capacity: Overseas introductions are still limited, with a slight decline in the stock of parent generation. In July, the average stock of parent generation meat-type chickens was 1.3 million sets, a year-on-year increase of 16.6% and a month-on-month increase of 0.9%. Third-party data (Baosteel) shows that the industry added 0.087 million sets in July; the stock of parent generation chickens was 21.19 million sets, a year-on-year decrease of 4.3% and a month-on-month decrease of 0.8%; the price of parent generation chicken chicks in July was 47.85 yuan per set, and the latest data for the 31st week of 2024 was 54.37 yuan per set.

Overseas bird flu situation: Bird flu in the United States continues, and Brazil has reported newcastle disease. Brazil, the world's largest exporter of chicken meat, reported a case of newcastle disease in July. The export of poultry products to China is still suspended in the outbreak state, and as of August 17, 3 cases of poultry and 163 cases of wild bird flu have been reported. If the world's largest exporter of chicken meat continues to experience poultry epidemics, it will have a significant impact on global chicken meat trade. In July, the United States reported 6 cases of bird flu in commercial farms, with a cumulative total of 56 cases this year. At the same time, bird flu has been reported in 191 dairy farms in 13 states in the United States, increasing the risk of interspecies transmission and possibly escalating prevention and control difficulties. As of August 16, the United States reported 1 case of bird flu in a commercial farm and 5 cases in a family farm in the past 30 days, with over 0.3 million birds culled. Currently, there have been 508 cases of commercial farm outbreaks, affecting over 0.1 billion poultry. In the short term, the subsequent situation may still maintain a state of restricted supply from one breeding state, and importation and breeding may continue to be limited.

Investment advice: From a long-term perspective, white chickens, as the animal protein with the lowest feed-to-meat ratio, will further demonstrate their cost-effectiveness and economic advantages. The long-term growth potential of the industry has already been highlighted. On the other hand, compared to the previous cycle, the leading enterprises have significantly expanded in scale, and the profit realization ability in this cycle is expected to achieve substantial growth. The profitability of the industry chain is concentrated in the upstream breeding segment, and superior breeding companies may obtain excess returns.

Currently, the valuation of the sector has reached a low level after a correction. It is expected that the long-term logic of restricted overseas imports will continue to be validated. Under the background of restricted importation, excellent breeding companies will maintain their advantage in selling price and market average price. We recommend focusing on shandong yisheng livestock & poultry breeding, which has a continuous growth in scale and the potential to obtain cycle profits and barrier profits. We also recommend undervalued leading companies in white-feathered chicken, such as wellhope foods. It is suggested to pay attention to fujian sunner development, shandong xiantan, shandong minhe animal husbandry, etc.

Zhongtong Finance & Economics APP has learned that Huachuang Securities has released a research report that believes the chicken cycle is coming. From a long-term perspective, the cost-effectiveness and economic advantages of white chickens as the animal protein with the lowest meat-feed ratio will further be reflected, and the industry's long-term growth is already evident. On the other hand, the scale of leading enterprises has expanded significantly compared to the last cycle, and the profit realization ability of this cycle is expected to achieve substantial growth compared to the last cycle. The industry chain profit is concentrated in the upstream breeding link, and advantaged breeding enterprises may obtain excess returns. According to the Association's monthly report, from January to April, only 179,900 imported grandparents seeds (accounting for 41%) were updated, and the import ratio continued to be below 50%. In the downstream industry with weak profitability, the upstream parental link can still maintain a continuous rise in prices. This further highlights the supply and demand contradiction in the upstream link, and short-term regulation behaviors such as changing feathers and extended elimination are difficult to make up for the shortfall in imported varieties. In May, the overall price trend of the industry chain is improving, and along with the transmission of upstream contradictions to the downstream, the industry chain prices are expected to continue to rise. White chicken prices may continue to improve, and corporate profits are expected to rebound. With terminal inventory at a low level and stocking up, the white chicken product industry rebounded month-on-month in April. As for chicken seedlings, according to the data of listed companies, the price of commodity representative chicken seedlings maintain profitability, but weak compared to the same period. In terms of slaughter, the price of broilers continued to decline year-on-year, but there was a slight improvement month-on-month. The industry space continues to expand. As for chicken seedlings, the industry's commodity representative chicken seedlings sales volume for the 14th-17th weeks of 2024 was 359 million birds, a YoY increase of 6%, and cumulative sales of 1.405 billion birds from the 1st to the 17th week, a YoY increase of 6%. Among listed companies, Yisheng's sales volume in April showed a YoY decline but a slight increase MoM, and it is expected to maintain a sales scale of around 600 million birds of commodity representative chicken seedlings in 2024. As for meat sales, head enterprises are actively extending downstream and expanding deep-processed products with high-speed growth, and the product structure has been optimized, further weakening the cyclical impact. After the Zoucheng project of Xiantan shares was completed and put into operation in 2024, the volume of chicken slaughter would reach 250-270 million and the capacity of meat processing would reach 700,000. The company's production capacity will be doubled. Capacity: Overseas import volume is still restricted, and there is hope that in-production parental stocks will continue to decline. In April, the average stock of grandparents' commercial chicken was 1.18 million sets, an increase of 6.6% YoY and 1.8% MoM. Third-party data (Steelhome) showed that the industry's updated quantity was 151,000 sets in April. The stock of parents was 21.95 million, a decrease of 2.5% YoY and 0.6% MoM. In April, the price of parent chicken seedlings was 35.29 yuan/set. The latest quotation data for the 18th week of 2024 was 38.68 yuan/set, which rose for three consecutive weeks. Overseas avian influenza: The US avian influenza continues, and importation is still restricted. The commercial chicken farm avian influenza in the United States has accumulated at 2 cases in May, and has reported avian influenza outbreaks in 51 dairy farms in 9 states, increasing the risk of interspecies transmission, making the prevention and control more difficult. Brazil, the largest chicken exporter, has reported 3 cases of avian influenza in poultry and 161 cases in wild birds as of May 17. If a poultry epidemic occurs in the world's largest chicken exporter, it will have a significant impact on global poultry trade.The latest 30 days as of May 20, there have been 4 commercial chicken farm and 7 family breeding HPAI, and more than 1 million poultry have been culled. In the short term, the follow-up may continue to maintain the state of one seed supply zone, and importation may continue to be restricted. We expect the chicken cycle to come. From a long-term perspective, the cost-effectiveness and economic advantages of white chickens as the animal protein with the lowest meat-feed ratio will further be reflected, and the industry's long-term growth is already evident. On the other hand, the scale of leading enterprises has expanded significantly compared to the last cycle, and the profit realization ability of this cycle is expected to achieve substantial growth compared to the last cycle. The industry chain profit is concentrated in the upstream breeding link, and advantaged breeding enterprises may obtain excess returns. Currently, the sector's valuation is at a low level after adjustment. It is expected that the long logic of restricted overseas import will continuously be verified, and the sales price of excellent breeding enterprises will continue to maintain their advantages over market prices under the background of restricted importation. Yisheng Livestock & Poultry Breeding, which has continued to expand its scale and is expected to gain cyclical and barrier profits, is heavily recommended, and the undervalued white chicken leader, Wellhope Foods, should also be noted. It is recommended to pay attention to Sunner Development, Xiantan Shares, Minhe Shares, etc.