Live pig production capacity destocking is entering an acceleration phase, coupled with intensified policy regulation measures. Pay attention to the breeding ETF (159865)

On March 16, the breeding sector continued its recent relatively strong performance, with the breeding ETF (159865) rising by 1.06%. The core logic behind this rebound in the breeding sector is the accelerated reduction of hog production capacity, combined with intensified policy regulation.

Source: WIND

Regarding capacity reduction, hog prices have quickly fallen back to around 10 yuan per kilogram. The profit margin for self-breeding and self-rearing has turned negative again with a steep slope, and pig breeding companies are generally experiencing cash flow losses. The number of breeding sows continues to decline since Q4 of last year, and the restocking of replacement gilts has slowed overall. The industry faces ongoing passive capacity reduction pressure, and the capacity reduction logic is showing a self-reinforcing trend.

On the policy front, the Ministry of Agriculture and Rural Affairs recently held a special meeting, reiterating the goal to reduce the number of breeding sows, with increased policy efforts likely to significantly accelerate capacity reduction. Meanwhile, regulators have clarified the direction of capacity control, restricting profitable groups from expanding countercyclically at the cycle bottom, effectively supporting the sustainability and reversal resilience of the cycle. The dual drivers of “losses from farm-scale reduction + administrative capacity regulation” make the capacity turning point signals increasingly clear.

Regarding sector valuation, ample valuation safety margins are also a key reason for capital allocation. Currently, the PE_TTM of the breeding sector is 19.65, near the 36th percentile historically, similar to the pig price and stock price double bottom position in October 2021. The cost advantages of leading companies and increased industry concentration further enhance the sector’s investment value.

Looking ahead, in the short term, pig prices may remain low and volatile in March and April. From a medium- to long-term perspective, the probability of an industry prosperity cycle beginning is significantly increasing. As the reduction in breeding sows gradually transmits to the pig supply side, coupled with seasonal consumption recovery in the second half of the year, the market supply and demand relationship is expected to see substantial improvement. Investors are advised to remain patient, seize opportunities to buy on dips in batches, avoid chasing high prices, and continue to monitor the breeding ETF (159865).

Risk Warning:

Investors should fully understand the differences between regular fixed-amount investment funds and savings methods such as fixed deposits. Regular fixed-amount investment is a simple and practical way to guide investors toward long-term investment and average investment costs. However, it cannot eliminate the inherent risks of fund investment, guarantee returns, or serve as an equivalent financial management alternative to savings.

Both stock ETFs/LOFs are securities investment funds with higher expected risks and returns, with expected yields and risks higher than hybrid funds, bond funds, and money market funds.

Funds investing in STAR Market and ChiNext stocks face specific risks due to differences in investment targets, market systems, and trading rules, which investors should be aware of.

The short-term price fluctuations of the sector/funds listed are only auxiliary materials for the article’s analysis and are for reference only. They do not guarantee fund performance.

The short-term performance of individual stocks mentioned in the article is for reference only, not a stock recommendation, nor a forecast or guarantee of fund performance.

The above opinions are for reference only and do not constitute investment advice or promises. If you wish to purchase related fund products, please pay attention to the relevant regulations on investor suitability, conduct risk assessments in advance, and choose fund products matching your risk tolerance. Funds carry risks; investment should be cautious.

Daily Economic News

(Edited by: He Chong)

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