Pig Prices Fell In May, Leading Pig Enterprises' Profitability In The Second Quarter Under Pressure

The second quarter profit of the pig industry will drop sharply on a month on month basis.

As of June 9, the sales data of head listed pig companies in May were all released. Among them, muyuan shares and Zhengbang technology fell below 18 yuan / kg, while Wenshi shares, new hope and tianbang shares were 18.26 yuan / kg, 18.46 yuan / kg and 18.07 yuan / kg, respectively.

This means that, after the collective loss of pig fattening, the pig price has begun to approach the "self breeding" cost line.

Taking muyuan shares as an example, the company's total cost of commercial pig breeding in the first quarter of this year is about 16 yuan / kg. We should know that the comprehensive cost of muyuan shares is much lower than that of xinhope and Zhengbang science and Technology Co., Ltd. due to its "fully self-supporting" mode.

In the future, once the pig price breaks through the above cost line, the whole industry will once again enter a loss. However, whether it is the adjustment of business strategy of "price compensation by volume" or hedging through derivatives market, the effect is very limited.

The reporter of 21st century economic report has learned that although some leading enterprises have participated in pig futures, due to subjective reasons such as insufficient acceptance and objective reasons of pig futures market capacity, they are still unable to achieve the effect of effectively hedging risks.

In contrast, small and medium-sized enterprises or farmers can choose customized products such as "insurance + futures" launched by risk management companies, so as to lock in the few breeding profits.

"There must be a rise" is hard to change the medium and long-term trend

20 yuan / kg, which is a very sensitive price for pig. From 2007 to the end of June 2019, the domestic pig price has been fluctuating in the range of 10-20 yuan / kg.

However, due to the devastating impact of the current round of African swine fever on the stock, pig prices only broke away from the above range in July 2019 and soared all the way. By the end of October and early November of 2019, the average price of pigs in 22 provinces and cities in China once rose above 40 yuan / kg.

It goes up fast and falls slowly.

In 2020, with the gradual recovery of domestic pig production capacity, pig prices began to fall unilaterally from the beginning of this year, and the above price of 20 yuan / kg was easily broken down.

On May 24, the price data released by the National Bureau of statistics in the middle of May showed that the current price of live pigs (other three yuan) had fallen to 18.5 yuan / kg, down 8% compared with the first ten days. On June 9, the National Bureau of statistics released CPI data for May. In food, the price of live pigs continued to drop by 11%, down 23.8% year-on-year, 2.4 percentage points higher than that of the previous month.

Since then, the May sales data released by listed companies, including muyuan shares, also fell to about 18 yuan / kg.

"At present, the number of live pigs in China has recovered to more than 95% of that before the epidemic. The recovery of production capacity indicates the repair of supply, and the logic of rising pig prices has disappeared." Zhongyuan futures agricultural products senior researcher Liu sikui said.

He also pointed out that although the epidemic broke out again in some parts of northern China after the Spring Festival, it once triggered a concentrated market launch, but it did not hinder the overall situation of the supply side, "adding a large number of supplementary hurdles in 2020, and the demand at this stage is in the off-season, and the pig price drops rapidly."

Historically, the fluctuation characteristics of pig prices are the same, that is, the second quarter of each year is the lowest price in the year.

So, in the above prices approaching the "self breeding" cost line, and the expectation of improved demand in the later stage, can pig prices rebound?

In fact, although the price of pig futures has hit a new low in recent years, it is still in the state of "premium", which is higher than the spot price by more than 2-3 yuan / kg. The reason is that all parties in the market think that the pig price will "rise once more" in the second half of the year.

However, the potential seasonal rebound in pig prices may need to solve the inventory problem first. Liu sikui reported that from January to may, domestic pork imports were considerable. At present, the supply of pork in the market was relatively sufficient, and the process of digestion and inventory would appear in the later stage. "The purchased piglets have suffered huge losses, and the price of pigs is close to the cost line of self breeding and self-cultivation, which will certainly limit the enthusiasm of supplementary hurdles. But this needs a process. After all, the current situation of more meat has not changed."

Of course, the potential rebound in pig prices is bound to be a phased market.

According to the prediction made at the annual general meeting of shareholders of muyuan Co., Ltd., "although there may be a seasonal rebound in the future, the pig price generally shows a downward trend, and the pig industry is expected to reach the bottom in 2022 or 2023."

The company has made a "preparation for the winter of the industry" statement.

As far as cyclical industries are concerned, only when there are large-scale losses, spontaneous withdrawal of production capacity and supply-demand relationship from balance to tension, will product prices usher in a "turning point".

At this time, it is too early to judge the bottom of the industry.

Live pig futures 43000 hand positions, "shallow pool" difficult to raise big fish

The long-term rate of pig price continues to fall, and pig breeding enterprises naturally need some "solutions" to stabilize their operation.

At the beginning, including muyuan shares, the program given by breeding enterprises was to "supplement price with quantity", to offset the decline of price through the growth of sales volume.

As a result, in the first quarter of this year, in addition to Wenshi shares, the sales of other head pig enterprises increased significantly. In the first five months of this year, the pig sales volume of muyuan shares reached 13.962 million, which has exceeded the sales scale of the first 10 months of 2020.

However, from the actual performance point of view, the growth of sales volume is not enough to hedge against the price decline.

When the pig price is 30 yuan / kg, the enterprise can get about 15 yuan / kg gross profit. However, when the pig price drops to 20 yuan, if you want to continue to obtain 15 yuan / kg gross profit, you need to change the pig sales from 1 pig to 3 pigs.

However, under the background of large-scale outsourcing of piglets by some head pig enterprises in 2020 to greatly increase their own marketing volume, it is difficult to scale up within the year, of course, excluding muyuan shares.

Now, live pig spot fell to less than 18 yuan / kg again. In theory, it also needs higher sales growth of breeding enterprises to hedge against price decline.

Looking at the derivatives market, there is very limited space for the head pig enterprises to move.

Pig futures have been listed on January 8 this year, and each head pig enterprise has publicly expressed "learning or participating", and even some enterprises have carried out transactions.

However, according to the current market environment, due to the short listing time of pig futures, the head pig enterprises are still unable to achieve effective risk hedging.

The reasons are both subjective and objective.

Subjectively, pig breeding enterprises generally have a low acceptance of derivative instruments, and the participation of the whole industry is relatively small. This is also affected by the lack of professional talents and mature mode of the enterprises themselves, so they have no place to start.

At present, the market is still in the stage of investor education. The good thing is that some changes have begun to appear after being hit hard.

"From the visit situation, after a continuous decline in the first half of the year, the industry's awareness began to improve." Yuxin investment (Shanghai) Management Co., Ltd. derivatives department head Chen Yazhong said.

Objectively, it is due to the fact that pig futures have not been listed for half a year. Although the position scale has increased significantly recently, with the total position of more than 43000, it is still insufficient to support the hedging demand of super large pig breeding enterprises.

You can make an account. One hand of pig futures is equal to 16 tons. According to the 110 kg standard, each hand of futures is about 145 pigs. At present, the total position of 43000 hands of pig futures is equivalent to 6.24 million pigs.

Looking at the head pig enterprises, the sales volume of muyuan shares in May this year was 3.1 million, while that of Wen's shares and new hope was 956700 and 693300 respectively in the same period.

It can be imagined that if the industry leaders sell the millions of pigs in June to the futures market, it will be difficult for the market to provide enough counterparties to ensure the transaction. Even if the transaction, large-scale empty order entry will have a significant impact on pig futures.

Preliminary study on "customized" derivatives of pig

Under careful study, at this stage, super large leading enterprises do not have a practical "solution", and the profitability of the second quarter will be under full pressure.

For the pig futures, there are risk management companies have launched customized products related to pigs.

Taking the "insurance + futures" product launched by Yuxin investment as an example, corporate customers do not need to know the derivatives market very well, they only need to pay a certain proportion of "premium" to the risk management company, and the actual hedging transaction is executed by the company itself.

According to the pig futures price of 17 yuan / kg and futures price of 21 yuan / kg, the core demand of breeding enterprises is to keep the sales price forecast of 21 yuan / kg. When the delivery of 2109 contract is approaching, no matter what price the pig price falls to, the breeding enterprise can achieve a profit of about 3.4 yuan / kg.

"It is equivalent to buying insurance, which is essentially an option. Suppose that in order to guarantee the main contract of 21 yuan, the company will have to pay as much as the price is lower." Chen Yazhong said.

Of course, if the price of live pigs rises by more than 21 yuan / kg, the unit profit gained by the breeding enterprises will increase accordingly, although the above premium needs to be deducted.

The emergence of such "customized" products, to some extent, also provides a solution for small and medium-sized breeding enterprises that do not understand the derivatives market and want to avoid the risk of future pig price decline.

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