On October 22, Caixin reported (Journalists Wang Ping'an and Liu Jian) that after entering the traditional peak consumption season in the fourth quarter, the pork price has been continuously declining for over two months during the traditional strong period, with a drop of over 20%.

Behind the decline in pork prices is the increase in slaughtered pigs corresponding to the expansion of piglets and the concentrated slaughter of secondary fattening pigs, collectively forming downward pressure. On the other hand, the upward cycle driven by the liquidation of sows could not withstand the downward pressure impact in the third quarter.

The fourth quarter becomes a decisive battlefield for the bulls and bears, where the originally diverse downward pressures from the expansion of piglets, piglets, and weak consumer demand have shown differentiation, ultimately the "piglet production capacity guidance" will clash with the "peak season consumption" on the stage of the upward cycle and stage the "ultimate showdown".

If the pork price does not strengthen during the peak season, the pig cycle may either directly come to an end, or if the pork price realizes an upward pig cycle in the fourth quarter, then pig enterprises and the farming industry can still look forward to a "fat year" in 2025.

(Comparison chart of the trends of sows and piglets Source: Ministry of Agriculture and Rural Affairs)

The pork price continues to fall, but the pig cycle may still be in the upward range.

As of October 19th, the national hog price was 17.28 yuan/kg, down 3.9% weekly, after peaking at 21 yuan/kg on August 15th, it has continued to decline for two months, with a total drop of over 20%.

(Pork price trend image source: data screenshot)

In the third quarter, when pork prices continued to reach new highs, listed pig companies made substantial profits. Muyuan Foods (002714.SZ), special treat Tianbang (002124.SZ), and Beijing Dabeinong Technology Group (002385.SZ), which have announced their performance forecasts, have all turned in impressive report cards. Among them, Muyuan Foods even achieved a daily profit of over 0.1 billion yuan.

If the continuously declining pork prices in the past two months fail to stop in the fourth quarter, does it mean that this round of the pig cycle is ending, and pig companies might even return to a loss-making situation?

From the perspective of the pig cycle, the upward trend in this round of the pig cycle is closely related to a significant reduction in the inventory of sows. According to data from the National Bureau of Statistics, by the end of the first quarter, the sow inventory was 39.92 million, a year-on-year decrease of 3.14 million, a 7.3% decrease; a quarter-on-quarter decrease of 1.5 million, a 3.6% decrease.

(Sow data chart Source: Wind)

According to the fluctuation of sow data, sows that started to expand in May 2024 will correspond to an increase in slaughter volume by March 2025 at the earliest. Therefore, before March next year, due to the total limit of sow numbers, the pig cycle uptrend may not have ended.

It is worth noting that with the recent scale enhancement in the hog farming industry in recent years, the pace of increase or decrease in production by group pig enterprises has become an important influencing factor in the pig cycle. Financial Associated Press reporters have learned from previous interviews that the full-year production plans of listed pig companies in 2024 were already determined in the first half of 2024 and will not easily adjust the annual production pace even with the rise in pork prices in the second half of the year. Therefore, pig companies will still slaughter pigs according to the original plan in the fourth quarter.

Realization of piglet production capacity, clear rhythm of secondary breeding

If the hog cycle is still in an upward trend, why has the pork price fallen for two consecutive months?

Finance Associated Press reporters noticed that during an upward cycle, pork prices have been continuously declining, directly related to the realization of piglet production capacity. According to data compiled by Zhuochuang Information and Yongyi Consulting, the number of piglets and their corresponding estimated hog marketings show that the supply low point will be in June to August this year.

china securities co.,ltd. Futures analyst Wei Xin believes that the trend of increased marketings after August is becoming clearer. Institutional statistics on planned marketings can verify this trend, and the remaining time of the year will face production capacity recovery pressure once again.

(Information Source: Screenshot of Data)

In addition, the 'secondary feeding' which has become an important component of the hog farming industry, has also become a key factor influencing the fluctuations in pork prices.

Data from Wind Information shows that from May 15th when the uptrend started, within one month until June 15th, the pork price rose from 15.27 yuan/kg to 18.72 yuan/kg, and then increased to a phase high of 21.06 yuan/kg on August 15th.

In March, May, and July of this year, a large number of 'secondary feeding' entries occurred. Yongyi Consulting and china securities co.,ltd. Futures estimates show that 'secondary feeding' accounts for approximately 6% of actual sales volume. When 'secondary feeding' purchases pigs from the market, it creates a supply gap, and then, two months later, impacts market demand at a weight gain level of around 40%.

(Secondary Feeding Sales Ratio: Information Source: Screenshot of Data)

In March, May, and July, the secondary sow sources correspond roughly to the 'value-added supply' in May, July, and September. Data shows that during May and July, the secondary sow group simultaneously purchased sow sources and released 'value-added supply', while in September, they only released, with some secondary sows starting to purchase in early October.

It is worth noting that the hog market in September faces the dual pressures of 'only selling without buying' of the secondary sows and the corresponding production capacity pressure and double realisation pressure of piglets.

The decisive victory in the fourth quarter

The fourth quarter has become a decisive battle for both the long and short sides of the hog price. If the hog price falls to near the cost line, or even falls below the cost line, the benchmark hog price for 2025 may plummet significantly. However, if the hog price maintains a high-profit position of 18-20 yuan/kg in the fourth quarter, proving pig scarcity, then next year's market still has bottom support.

The secondary sows, piglets, and weak consumer demand as the three main drivers of the decline in hog prices may see a certain transformation in the fourth quarter.

Regarding the second-stage fattening, an industry insider told Caijing reporters, 'Now the vacancy rate in the north is very low, almost every farm has pigs. Everyone has made money on two or three waves of secondary sows this year, and no one wants to miss the last opportunity this year. Many farms will bring in some. The vacancy rate in the south is about fifty percent, mainly in places where there is demand for cured meat. They bring in heavier secondary sows, and the prices for selling well-fattened pigs are slightly higher, which gives local people the motivation to raise secondary sows. Overall, compared with individual households and compared with July and August, there are not many pigs in stock now, and this year is likely to have a shortage of well-fattened pigs. As for whether well-fattened pigs can pull up the price of standard pigs, it remains to be seen because standard pigs are the biggest demand.'

In Jiangxi, more than half of the second-stage fattening farms have a vacancy rate.

In contrast, the slaughter weight of hogs has not experienced a rapid increase around October as it did from 2020 to 2023, proving that the supply pressure of large pigs is not significant.

(Weight trend situation image source: data screenshot)

The pressure on second fertility may be relatively reduced, and there are also expectations of a boost in the consumer market. During the National Day holiday, there was a strong adjustment in macroeconomic policies at the national level, with a combination of monetary and fiscal policies being implemented, including a series of powerful policies such as consumer voucher subsidies, interest rate cuts for existing home loans, and local government debt restructuring, leading to expectations of a warming trend in the meat consumer market. However, macro policy adjustments represent changes in the macroeconomic cycle, and the specific impact in the short term still needs to be observed in terms of magnitude and pace.

It is worth noting that piglet production capacity guidance is still increasing steadily, with a slightly higher growth rate from September to November, and it will gradually slow down after December, indicating the continued presence of a trend of inertia in production capacity growth.

Although there is still downward pressure, the upward momentum has accumulated to a certain extent. Firstly, on October 18, the statistics bureau released data on pig farming for the first three quarters, showing that as of the end of the third quarter, the national pig inventory was 426.94 million, a 3.5% decrease year-on-year; in the first three quarters, 520.3 million pigs were sent to market, a 3.2% decrease.

(2021-2024 hog data image source: Pig Farming Dynamics)

According to Pig Farming Dynamics statistics, looking at the pig inventory, by the end of the third quarter of 2024, there were 0.427 billion pigs, showing an increase for two consecutive quarters, but a 3.5% decrease compared to the same period last year. It is worth noting that this number is the lowest among the third quarter inventories in the past four years, with 10.7 million, 17 million, and 15.35 million fewer pigs compared to 2021-2023, respectively.

This also proves that the corresponding reduction in breeding sows leads to an overall decrease in production capacity, thereby confirming that the upswing in the pig cycle is not yet over.

Furthermore, as winter temperatures drop, the consumption of meat by consumers increases, and with the approaching salted meat season in November and December, January marks the peak of pork consumption for the whole year.

As the peak consumption season approaches and the pig inventory is not high, it may become the core support for the pig price increase in the fourth quarter. Muyuan Foods stated on the investor interaction platform: "Due to the gradual manifestation of the previous production capacity clearance impact, coupled with the traditional peak consumption season support on the demand side, there will be a certain gap in the supply and demand of the hog market. The company maintains a cautious and optimistic attitude towards the future hog market prices."

Expectations for 2025 are poor, and the true trend remains to be verified.

The battle between long and short positions in the fourth quarter has not yet been decided, and there are significant differences in the pig prices for 2025. Firstly, with the mid-year pig price rebound, prices are adjusted by an "invisible hand" to regulate production capacity.

Turning losses into gains in the second quarter, and with the background of enhanced profitability expectations in the future farming market, some listed pig companies have once again initiated private placements for expansion. According to incomplete statistics, since June, 4 listed pig companies have planned to raise funds for the construction of hog projects, fodder processing projects, supplementing working capital, etc.

In addition, the relevant pig companies have seen an increase in sow data since the second quarter. Muyuan Foods had 3.309 million sows at the end of June, compared to 3.129 million at the end of last year; Wens Foodstuff Group had -1.65 million sows at the end of June, compared to 1.55 million at the end of last year; DongRui Food (001201.SZ) announced in July that the number of sows was 0.063 million, which increased to 0.07 million by September.

It is worth noting that not only large-scale pig companies have seen a modest increase in sow numbers, but small-scale enterprises have also experienced some production growth, albeit not significantly large.

A company official stated, "When the pig prices were good a few months ago, we added some sows, but compared to increasing scale during previous price increases, the increase was not significant. Mainly we learned from past lessons, not daring to expand too aggressively or wildly in scale. If the market conditions and expectations differ greatly in the future, or if fodder prices rise, the pressure will be significant. As for specific plans for next year, we still need to wait and see. In the short term, the impact of the sow growth since May will gradually become apparent starting from the second quarter of next year. At present, I think we are still in a profit cycle."

The slight increase in production is also reflected in the data. According to the National Bureau of Statistics, as of the end of September, the national sow inventory reached 40.62 million, an increase of 0.25 million from the previous month, a growth of 0.6%. However, compared to the same period last year, there was still a decrease of 1.78 million, a 4.2% decline, remaining within the green and reasonable range of production capacity regulation.

The pricing benchmark for pork in 2025 may still depend on the bull and bear confrontation in the fourth quarter of 2024. If the pork price in the fourth quarter does not fulfill the upward expectations of the sow breeding data, but falters due to piglet expansion, the 2025 pork price may then follow suit. If the pork cycle of this year's fourth quarter is realized, the high-priced area generated by sow destocking may last at least until the middle of next year, and the subsequent capacity recovery rate is also significantly slow, pork enterprises in 2025 may still have a 'good year'.