China Merchants Securities: Chicken prices welcome a turning point in prosperity, and the breeding sector gradually turns profitable

According to the Zhitong Finance APP, China Merchants Securities released a research report stating that in August, the supply of white feather chickens decreased. Additionally, starting from mid to late August, distributors actively stocked up for the back-to-school season, providing good support for the price of live chickens, significantly improving profitability at the breeding end. On the other hand, as the avoidance of high temperatures at the breeding end comes to an end, farmers' enthusiasm for restocking has significantly increased, driving up the price of chicks. Regarding yellow feather chickens, since the beginning of the year, the top two companies have continuously increased their output. Currently, the supply of yellow feather chickens remains relatively sufficient. By mid-year, most breeding entities in the industry have reported losses, and it is expected that outdated production capacity may accelerate its exit. With marginal improvements in supply and demand, the price of yellow chickens rebounded in August, and high-quality production capacity has turned losses into profits. The main viewpoints of China Merchants Securities are as follows: White Feather Chickens: Chicken prices rebound from the bottom, and farmers increase restocking In August, the average price of chicks in major production areas was 3.29 yuan per chick, down 4% year-on-year and up 133% month-on-month; the average price of live chickens was 7.17 yuan per kilogram, down 6% year-on-year and up 9.9% month-on-month; the average price of chicken products was 8728 yuan per ton, down 7.5% year-on-year and up 3.4% month-on-month; the average profit per feather at the breeding end was 0.86 yuan. The decrease in chicken supply in August, coupled with distributors actively stocking up for the back-to-school season starting from mid to late August, provided good support for the price of live chickens, significantly improving profitability at the breeding end. On the other hand, as the avoidance of high temperatures at the breeding end comes to an end, farmers' enthusiasm for restocking has significantly increased, driving up the price of chicks. Since the beginning of the year, the overseas introduction of breeds has significantly decreased year-on-year, and it is expected that the supply of parent stock meat chicken chicks in China will be tight in the second half of 2025, which will also affect the supply of commercial meat chicken chicks in 2026. The outlook for the breeding stock sector is optimistic. Yellow Feather Chickens: Chicken prices welcome a turning point, and high-quality production capacity gradually turns profitable In August, the average price of fast-growing chickens was 5.11 yuan per pound, down 3.3% year-on-year and up 30% month-on-month; the average price of Xueshan grass chickens was 8.51 yuan per pound, down 3% year-on-year and up 32% month-on-month. Since the beginning of the year, the top two companies have continuously increased their output. Currently, the supply of yellow feather chickens remains relatively sufficient. By mid-year, most breeding entities in the industry have reported losses, and it is expected that outdated production capacity may accelerate its exit. With marginal improvements in supply and demand, the price of yellow chickens rebounded in August, and high-quality production capacity has turned losses into profits. The cost of yellow feather meat chicken output for leading companies has fallen to a low level, with WENS's yellow feather chicken output cost dropping to around 5.6 yuan per pound in the first half of the year, and LIHUA's yellow feather chicken output cost possibly falling below 5.5 yuan per pound; after the price of chickens rebounds, significant profit elasticity is expected to be released. Optimistic about the breeding stock sector of white chickens, and expect a rebound in yellow chicken prices during the peak season White Feather Chickens: Although the import of grandparent stock chickens is expected to increase year-on-year in 2024, it has not returned to the normal levels of introduction before the interruption; it is expected that the demand for high-quality parent stock chicks will be good in 2025; coupled with the significant decrease in overseas introductions, the supply of parent stock chicks will be tighter in the second half of 2025, which will also affect the supply of commercial chicks in 2026. The outlook for the breeding stock sector is optimistic, with a strong recommendation for the integrated leading enterprise Sunner (002299.SZ) that has improved costs. Yellow Feather Chickens: Currently, the inventory of parent stock chickens has dropped to historically low levels, and coupled with the industry's losses persisting for some time, the contraction in supply lays the foundation for future price increases. Currently, the breeding costs of yellow chickens have fallen to low levels, and after the price rebounds, significant profit elasticity is expected to be released. In the long term, as consumer habits change, sales bans are implemented, and economic recovery boosts consumption, the market for chilled yellow feather chickens may still have considerable development space Key recommendations: LIHUA (300761.SZ), DeKang Agriculture and Animal Husbandry (02419). Risk Warning Fluctuations in chicken prices exceed expectations; the sales and cost performance of listed companies fall short of expectations; sudden large-scale uncontrollable epidemics; fluctuations in feed raw material prices exceed expectations; major food safety incidents