Dongfang Securities: The hog industry suffers deep losses and accelerates capacity reduction

According to the Zhitong Finance APP, Dongfang Securities released a research report stating that the current pig prices are weak both in reality and expectations. Coupled with policy-driven factors, the pig farming industry is expected to initiate capacity reduction. Under the pressure of capacity transmission, the current price of fat pigs is approaching 11 yuan/kg, and the price of 7kg weaned piglets has dropped below 200 yuan/head, leading the industry to quickly fall into a comprehensive loss stage. Considering that the current prices of fat pigs and piglets have recently dropped to their lowest point of the year, prices are expected to further decline (currently, it appears that the slaughter volume of fat pigs will remain high until early 2026). In terms of profitability, in August, the pig farming industry turned to losses, with large-scale farms reporting an average profit of -57 yuan/head for fat pigs (compared to 21 yuan/head in July), and individual farmers reporting an average profit of -109 yuan/head (compared to 6 yuan/head in July). The main viewpoints of Dongfang Securities are as follows: Live Pigs: Strengthening Certainty of Capacity Reduction The current pig prices are weak both in reality and expectations, and coupled with policy-driven factors, the pig farming industry is expected to initiate capacity reduction. Under the pressure of capacity transmission, the current price of fat pigs is approaching 11 yuan/kg, and the price of 7kg weaned piglets has dropped below 200 yuan/head, leading the industry to quickly fall into a comprehensive loss stage. Considering that the current prices of fat pigs and piglets have recently dropped to their lowest point of the year, prices are expected to further decline (currently, it appears that the slaughter volume of fat pigs will remain high until early 2026). Based on historical experience, when the prices of fat pigs and piglets are at low levels, the industry is likely to initiate market-oriented capacity reduction. In addition, policies continue to strengthen restrictions on the capacity of leading groups, and with these two factors combined, the overall capacity reduction in the industry is expected to restart, supporting a long-term increase in pig prices. Accelerated Slaughter of Live Pigs in August, Industry Quickly Turns to Losses Breeding Sows: Slight decrease in capacity. By the end of August 2025, the number of breeding sows was 40.38 million, a decrease of 40,000 from the previous month, basically flat year-on-year. Supply of Live Pigs: Accelerated destocking, slaughter volume increase surpassing previous years. In August, the slaughter volume of live pigs reached 33.5 million, a month-on-month increase of 5.8% and a year-on-year increase of 29.6%, with continued acceleration in slaughter volume, reaching the highest month-on-month growth rate in nearly four years. Prices & Profits: Commodity pig prices continue to weaken, and industry profitability rapidly deteriorates. In terms of prices, the average price of commodity pigs in August dropped to 14.23 yuan/kg, down 4.1% month-on-month and down 31% year-on-year. The average selling price of piglets was 33.63 yuan/kg, down 5.9% month-on-month and down 24% year-on-year. In terms of profitability, the industry turned to losses in August. Large-scale farms reported an average profit of -57 yuan/head for fat pigs (compared to 21 yuan/head in July), and individual farmers reported an average profit of -109 yuan/head (compared to 6 yuan/head in July). Investment Recommendations Optimistic about the pig farming sector, the continuous profitability and increasing dividend rates of quality companies remain the core drivers for the long-term performance and valuation improvement of the sector; recent policies and market forces are jointly promoting capacity reduction in the pig farming industry, aiding in the long-term performance improvement of the sector. Relevant stocks include MUYUAN (002714.SZ), WENS (300498.SZ), Shennong Group (605296.SH), and Juxing Agriculture and Animal Husbandry (603477.SH). In the post-cycle sector, the rebound in the number of live pigs will boost demand for feed and animal health products. If this round of capacity reduction in live pigs proceeds smoothly, profits in the industry chain are expected to gradually transmit downstream, driving the animal health sector upward. Relevant stocks include Haida Group (002311.SZ) and Ruipu Biological (300119.SZ) Risk Warning Livestock and poultry prices are below expectations; large-scale outbreaks of livestock and poultry diseases; significant fluctuations in raw material prices