December 7, 2022

 

Recovering pig prices get China's producers back into profitability

 

Pork prices in China's domestic market surged 36% year-on-year in September 2022, an increase of 13.6 percentage points from the previous month, according to the latest statistics from the National Bureau of Statistics.

 

Understandably, investors are more concerned about how the pig price rally can lift pig producers’ profits and, subsequently, their share prices.

 

After hitting a low of ¥11.91/kg in mid-to-late March, the average Chinese pig price has rebounded in three waves. As of October 14, the price has reached ¥27.66/kg (US$3.82), a 132% increase from March. The strong rally of pig prices has stimulated profits for listed pig breeding companies.

 

Based on the sales data in September alone, the average pig sale prices of the five major companies — Muyuan, Wen's, New Hope, Tianbang and Zhengbang — have increased over 80% year-on-year. In particular, Muyuan recorded the largest year-on-year price hike of 100.7 %.

 

On the surface, it looks like listed pig producers finally returned to profitability following huge losses in the first half of 2022.

 

Since June 2022, pig farms with breeding units have enjoyed a high profit of over ¥300 (US$41.47) per pig released. This has expanded to ¥700 (US$96.76) per pig by September 15, 2022, and surged further to ¥900/pig (US$124.53) after long holidays in early October.

 

The supply of commercial pigs is expected to gradually improve in the fourth quarter, thus helping to ease shortages. However, at the same time, the demand for pork is set to expand in the same period as the production of cured pork products increases due to the coming Chinese New Year. Consequently, pig prices are projected to move higher in the fourth quarter and peak in December.

 

Rebounded pig prices have brought direct benefits to listed pig companies. While Muyuan lost ¥6.68 billion in the first half, it is expected to make a profit of over ¥9.8 billion (US$1.4 million) in the third quarter, with over ¥3 billion (US$415.3 million) surplus after covering for losses in the first half. Guosen Securities estimated Muyuan’s net profit for the year at ¥11.98 billion (US$1.7 billion).

 

Meanwhile, an October 12 research report projected Wen’s 2022 operating income to reach ¥83.26 billion (US$12 billion). For New Hope, an Orient Securities report estimated the company to achieve an annual operating income of ¥144.8 billion (US$20 billion), a year-on-year increase of 14.6%.

 

- David Lin, eFeedLink