In 2021, when the price of live pigs has fallen all the way down, the performance of pig enterprises seems to have become a foregone conclusion, but COFCO Jiakang (1610. HK) bucked the trend in the third quarter, and the company's stock price rose nearly 9% at one point in early trading on October 12.
At the same time, the performance of live pigs in the domestic futures market in recent days has been eye-catching. Following the report of the rise limit on October 11, the intraday session rose by about 3% in the morning of the 12th. Is the decline in the hog market expected to be resolved?
In the third quarter, the reverse trend profit was 850 million
In the early intraday session on October 12, cofranco Jiakang's stock price rose rapidly and returned to above 3 yuan per share. Since the end of September, the stock has rebounded by 30%.
COFCO Jiakang, formerly known as COFCO Meat Holdings Limited, is a fast-growing pork enterprise in China. The company's business includes feed production, pig breeding, slaughtering, production, distribution and sales of fresh pork and meat products, and import and sales of frozen meat products.
At the moment when pig prices have fallen sharply and the industry has generally lost money, COFCO Jiakang is expected to make a sharp profit in the third quarter.
On the evening of October 11, the company announced that the Group achieved a net profit of about 850 million yuan (unaudited) before the fair value adjustment of biological assets from July to September 2021. According to the announcement, the company's pig output in September was 288,000 heads, an increase of 0.35% month-on-month, and the cumulative pig output in the first nine months was 2.601 million heads; the average sales price of commercial pigs in September was 12.06 yuan per kilogram, a decrease of 15.61% month-on-month; the sales volume of fresh pork was 16,400 tons, up 13.89% month-on-month; and the brand revenue in the fresh pork business accounted for 32.8%.
With the continuous reduction of pig sales prices, how can COFCO Jiakang achieve profitability? Previously, some analysts pointed out that the company carried out futures hedging in the first half of the year, sold a certain proportion of pigs at a higher price, and locked in part of the profits in advance, and it is expected that the profits will be reflected in the second half of the year.
"The recent pig hedging in the futures market is definitely short, which also means that in the long decline of pig futures, the short insurance value of pig futures is definitely profitable." The decline in pig futures is much more than the price decline in the spot market, which also means that if hedged according to the ratio of 1:1, then the profit on the futures disk can cover the spot loss and achieve excess benefit. Bi Hui, a senior agricultural product researcher at the Boseong Futures and Finance Research Institute, pointed out in an interview with the Securities Times e Company reporter that the pig futures price rose at the spot price at the beginning of this year, and the current price difference was as high as four or five thousand yuan, but in September, the pig 09 contract delivery final node, the futures have fallen to the price of 12760 yuan / ton, the spot day is 13.37 yuan / kg, the spot relative futures are rising, the previous high basis has not only returned to all, but also appeared in the state of premium. This also leads to huge profits from hedging.
She believes that on the one hand, the price of live pigs continues to fall, which has achieved the profitability of hedging, on the other hand, the pig period has gradually converged from the high price difference to the later stage, and the futures price has been discounted, affecting the profit margin of the futures hedging position in the later period far exceeds the spot risk and achieves excess benefits. On the other hand, COFCO Jiakang's rich experience in futures hedging has also laid the foundation for enterprises to dare to hedge in the first delivery month when pig futures have just been listed. Many factors have contributed to the company's outstanding performance during the industry's trough period. Other companies may also learn from it. However, COFCO Jiakang has a mature futures team, and has long-term hedging experience in futures products such as soybeans and corn, so it can operate more smoothly in pig futures hedging. However, other industrial chain enterprises will be more cautious when they have just entered the futures market hedging, especially the pig futures variety has just been listed this year, and the 2109 contract is the first delivery month, for other customers in the industrial chain, even if there is hedging operation, the hedging position is difficult to cover the full risk of spot.
Hog futures rose more than 10% in two days
In the recent strong trend of commodities, the rise and stop performance of hog futures on October 11 was also extremely eye-catching, and in the early session of October 12, the main contract of hog futures closed up 1.88% again.
At the same time as the futures price rose, the pig spot market also appeared a long-overdue price rebound. According to the data of the pig search network, the average price of lean pigs in the country on October 11 was 10.77 yuan / kg, up 0.08 yuan / kg from 10.69 yuan / kg the previous day, an increase of 0.75% in a single day; compared with 31.62 yuan / kg in the same period last year, it fell by 20.85 yuan / kg, down 65.94% year-on-year. Recently, the average price of domestic pigs out of the pen showed a sustained bottoming out of a slight rebound trend, as of the 11th, the overall pig price has risen for 4 consecutive days, from near 10.4 yuan / kg to 10.8 yuan / kg, a cumulative 0.4 yuan / kg slight rebound. On the 11th, the market in the north and south continued to rise mostly, and among the 28 provinces that can be monitored in the country, there are still as many as 19 rising provinces, 5 provinces fell, and 4 provinces remained stable.
"The price of pig futures has risen sharply in recent days, mainly because the second batch of national storage was completely traded for the first time at the end of last week. The harvest in July was 20,000 tons, and the storage on October 10 was 30,000 tons, which is very obvious for the boost to the sentiment of the hog market. Bi Hui said.
Zhuo Chuang analyst Li Sujie also said that the recent pig price has been rising, and the rally has lasted for three or four days. Today, the northeast region has risen significantly, and has risen by 0.5 yuan / kg. The national average price has reached 11 yuan / kg yesterday, and since October 8, the cumulative increase has been 0.5 yuan / kg.
She believes that the reason for stimulating price increases is mainly driven by the demand side. On the one hand, this year's weather turned colder than the speed of the block, in some parts of the north in advance of the enema, on the other hand, in the case of low pig prices, breeding enterprises actively out of the pen, the weight of the pigs out of the pen is low, the big pigs are less, and the market supply support is small. In addition, the second round of the first storage completed on the 10th has also boosted the mentality of the industry.
"Previously, the price of live pigs fell sharply, mainly due to the fact that most of the big pigs in the market were fat pigs, impacting the market. But after the current pig price fell below the cost line, the larger the pig lost the most, so there are very few big pigs in the market. At present, the weight of the barn is concentrated in about 240 pounds, while the previous big pigs were mostly 300-400 pounds. She said.
The pig cycle has not yet bottomed out
Does the rare rise and fall in hog futures mean that the long-doldrums of the pig market will usher in a rebound inflection point?
"The sustainability of the pig market rebound still depends on the changes in the supply and demand side of the market, and whether the current market supply pressure can be effectively resolved is the main reason for determining the current rebound height." In the context of the continuous collection and storage of the country, the space for the downward adjustment of pig prices is relatively limited, but the height of the rebound is also limited. At present, the supply pressure in the market is still difficult to disappear, and a long cycle is still needed. Therefore, the strong increase in hog futures like in recent days is difficult to sustain. Bi Hui believes that according to the current market can breed sow inventory, basically until May and June next year, the pig cycle will not have an inflection point. Prior to this, the market supply pressure is still relatively large, and the pig price rebound space will continue to be suppressed. In the short term, for the main contract of pig futures 2201, the rebound pressure line is at 17500 yuan / ton.
Wang Lei also believes that at present, when it is in the downward stage of the pig cycle for a long time, pig production capacity has been restored to the right track, and now when pig prices are depressed for a long time, the production capacity of sows that can breed has also been affected to a certain extent. According to relevant news reports, the number of sows that can breed in September fell by 1.69% month-on-month, of which the large groups fell by 0.93%, so the current pig price does not have the basis for rising sustainability and sharp rebound, and the overall will still be dominated by shock adjustment.
"At present, the cost of pig breeding is still 15 yuan / kg, and farmers are still in a state of loss." At present, in the case of self-breeding and self-raising, the loss of the first pig is more than 500 yuan. "Li Sujie also believes that the current market production capacity is still in the release period, the pig cycle has not yet bottomed out, and the recent period is only a short-term rebound in the downward stage of the pig cycle." Under normal circumstances, October turned cold not so fast, and the general pork demand in November will be boosted, but this year's demand is released in advance, coupled with the national series of storage policies, so there is a short-term price increase. However, on the whole, the pig production in October is still higher than in September, so the market supply is still relatively sufficient. ”
She believes that in May and June next year, the pig cycle will only have an inflection point. According to monitoring, the peak of the breeding sow inventory is in May this year, according to the pig growth cycle calculation, from the breeding sow inventory to the pig out of the pen generally need a year, so until May next year, the market also needs a capacity digestion process.
(Editor-in-Charge: Peng Bo)