Summary of Conference Call on Cattle Industry and Dairy Market Industry Overview - The beef and dairy markets exhibit long-cycle characteristics influenced by physiological factors and insufficient capital confidence, leading to slow capacity recovery and potential price increases lasting up to two years [1][4] - Current asset prices are low, with some companies facing survival challenges due to declining dairy product demand [1] Key Insights and Arguments - The dairy price decline is primarily due to weak demand and low feed costs, resulting in a slower-than-expected decrease in herd numbers [7] - The original milk price has been in a downward trend since late 2021, currently around 3 RMB per liter, down from previous highs of 4-5 RMB [8] - A potential supply-demand balance for raw milk may occur in August 2025, with a more significant turning point expected by the end of 2025 or early 2026 [9] - The beef market is experiencing significant price increases, with wholesale prices rising 20%-30% in the first half of 2025 [17] - The cattle industry is characterized by a long breeding cycle, with a significant reduction in new calves, limiting supply [18] Financial Implications - Beef price increases significantly impact the financial statements of cattle companies, reducing biological asset impairment losses and improving actual income and cash flow [10] - The income from culling cows is substantial, with estimates of 900 million to 1 billion RMB from culling 90,000 to 100,000 cows annually at a price of around 10,000 RMB per cow [5][11] - The expected increase in beef prices could lead to an additional 300 million RMB in income from culling, directly affecting the fair value of biological assets [11] Market Dynamics - The current market is experiencing a significant downturn, with a 13% year-on-year decline in stock levels from January to May 2025 [17] - The domestic beef supply includes local cattle farming, culling, and imports, with imports accounting for about 30% of total demand [19] - The import of beef has been affected by trade policies and the pandemic, limiting short-term increases in import volumes [20] Investment Opportunities - The current low asset prices present an opportunity for investment, particularly in upstream cattle companies like YouRan, China Shengmu, and Modern Farming [16] - A strategy of early investment during market downturns is recommended, as the market is expected to recover [16] Additional Considerations - The long-term nature of the cattle breeding cycle means that even with increased investment, it will take time to see a significant supply response [18] - The relationship between biological asset impairment and cash flow is complex, with potential for higher reported profits if impairment is calculated differently [14] This summary encapsulates the key points from the conference call regarding the cattle and dairy markets, highlighting the cyclical nature of the industry, financial implications, market dynamics, and investment strategies.

Investment Rating - The report initiates coverage with a "Buy" rating for the company [6]. Core Views - The company is positioned to benefit from the upward cycle of the beef market, with expectations of profit recovery and growth driven by its strong brand and integrated meat industry chain [4][71]. - The company has a long history and has developed a comprehensive meat industry chain, enhancing its competitive edge [10][11]. Summary by Sections 1. Company Overview - The company, established in 1930, has evolved from a small workshop to a comprehensive meat industry player, focusing on high-quality products and brand development [10]. - It operates a full industry chain including feed production, breeding, slaughtering, and meat processing, which forms its core competitive advantage [11]. 2. Beef Market Cycle - The beef market is expected to experience a cyclical upturn, influenced by both domestic and international supply factors [30]. - The report highlights the low concentration in China's beef market, suggesting potential for significant price elasticity and recovery following capacity adjustments [49][51]. - Major beef-producing countries are anticipated to see price improvements that will positively impact the domestic market [56]. 3. Business Segments - The company controls New Zealand's largest beef slaughtering enterprise, Silver Fern Farms, which enhances its global trade capabilities [73]. - The brand "Guanshengyuan" is a key asset, with a strong market presence in various food categories, contributing to the company's long-term performance stability [2]. - The company is a major player in the pig farming sector, ensuring stable supply and collaboration across the entire meat production chain [2][3]. 4. Financial Forecast and Investment Recommendations - Projected net profits for 2025, 2026, and 2027 are estimated at 431 million, 680 million, and 769 million yuan respectively, with corresponding EPS of 0.46, 0.73, and 0.82 yuan [5]. - The company is expected to benefit from the beef cycle's upward trend, leveraging its core competencies in the meat industry [4][71].

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The supply contraction and macroeconomic catalysts are expected to resonate positively, with strong support for pig prices in Q3 2025 [4][5] - The leading pig companies are reporting significant profit increases for Q2 2025, with a notable rise in pig output and a decrease in production costs, indicating a potential for sustained profitability [4][13] - The beef cycle remains supported by rising calf prices and a decrease in cattle inventory, suggesting a favorable outlook for beef prices in the latter half of 2025 and into 2026 [6][29] Summary by Sections Weekly Observation - Leading pig companies are expected to report substantial profit growth for H1 2025, with estimates for Muyuan Foods indicating a net profit of 10.2-10.7 billion yuan, a year-on-year increase of 1129.97% to 1190.26% [4][13] - The average cost of production for Muyuan Foods has decreased to below 12.1 yuan/kg, supporting profitability through the cycle [4][13] Market Performance - The agricultural index has risen by 1.09% in the week of July 4-11, 2025, aligning with the overall market performance [39][41] - The pig farming sector is experiencing a supply contraction, which is expected to drive pig prices upward after a period of fluctuation [5][14] Price Tracking - As of July 11, 2025, the average price of pigs is 14.81 yuan/kg, reflecting a decrease of 0.54% from the previous week, while the price of piglets has increased by 1.79% to 31.89 yuan/kg [48][49] - The wholesale price of beef is reported at 69.82 yuan/kg, showing a slight increase of 0.07% [56] Recommendations - The report recommends investment in leading companies such as Muyuan Foods, Wens Foodstuffs, and others in the pig farming sector due to improving investment logic and favorable market conditions [6][35] - In the feed sector, companies like Haida Group and New Hope are recommended due to strong domestic and overseas demand [35]

Group 1: Beef Industry - The beef cycle in China is undergoing significant changes, with a long-term trend of price increases due to lower production capacity compared to consumption growth. The high profitability cycle in beef farming is leading to aggressive expansion downstream, but this has resulted in substantial losses since July 2023. The industry is characterized by low concentration and severe information asymmetry, similar to the pig farming industry before the African swine fever outbreak. Once capacity is effectively cleared, supply-demand mismatches and price elasticity may exceed expectations [3][57]. - China's beef production capacity is not proportional to its beef output, with a significant gap between live cattle production and beef yield. In 2024, China is projected to produce 520 million live cattle but only 779 million tons of beef, indicating inefficiencies in production practices [19][24]. - The beef import dependency in China has increased significantly, with imports rising from 601,000 tons in 2016 to 2,915,000 tons in 2024, reflecting a compound annual growth rate (CAGR) of 21.8%. This has amplified the impact of imports on domestic beef pricing [24][25]. Group 2: Swine Industry - The swine industry is expected to experience a short-term decline in prices due to an oversupply of pigs, with the national breeding sow inventory remaining stable but limited growth. The Ministry of Agriculture has mandated a halt to the expansion of breeding sows, which will impact supply dynamics in the second half of 2025 [87][89]. - The supply of piglets is expected to increase, leading to higher market pressures in the second half of 2025. However, potential outbreaks of diseases in the autumn and winter could lead to a temporary decrease in supply, which may cause prices to rise in 2026 [89][92]. - The average asset-liability ratio of listed pig farming companies has improved from 73.9% to 61.6% between Q2 2023 and Q1 2025, indicating a recovery in financial health among leading firms in the industry [99]. Group 3: Animal Health Industry - The animal health sector is expected to benefit from improvements in efficiency and cost management, despite an oversupply in the breeding industry. The demand for veterinary drugs is anticipated to rise as pig prices recover, which will positively impact upstream animal health companies [84][90]. - The industry is transitioning from a focus on scale to an emphasis on quality, with the development of vaccines against diseases like African swine fever becoming a critical catalyst for growth in the animal health sector [90][92]. Group 4: New Consumption Trends - The pet consumption market in China is steadily growing, with the overall market size expected to reach 300.2 billion yuan in 2024, reflecting a year-on-year growth of 7.5%. The pet cat market is particularly strong, with a growth rate of 10.7% [59][62]. - Domestic brands are gaining popularity among pet owners, with a significant increase in preference for local products over foreign brands. This trend is driven by cost advantages and effective marketing strategies during major shopping events [72][79]. - The demand for pets as companions is rising due to demographic changes, including an aging population and declining marriage rates, which is expected to further boost the pet industry [67][68].

Investment Rating - The report maintains an "Outperform" rating for the agricultural sector [5] Core Insights - The USDA's May supply and demand report indicates a tightening of global supply for corn, soybeans, and wheat, while beef prices in the U.S. are expected to rise due to reduced supply [5][6] - The report highlights potential investment opportunities in the agricultural sector, particularly in corn and soybean markets, as prices are expected to stabilize and recover from historical lows [5][6] Summary by Relevant Sections Corn - The USDA forecasts a global corn production increase of 43.7 million tons (approximately +3.45%) to 1.26498 billion tons for the 25/26 season, with total usage rising by 24.4 million tons (approximately +1.91%) [16][17] - China's corn production is expected to increase by 80,000 tons (approximately +0.03%) to 295 million tons, with total usage up by 5 million tons (approximately +1.56%) [17] - Domestic corn prices are at historical lows, with strong support expected for price recovery [19] Soybeans - Global soybean production is projected to increase by 5.95 million tons (approximately +1.39%) to 426.82 million tons for the 25/26 season, with total usage up by 13.76 million tons (approximately +3.24%) [31][32] - The report anticipates that soybean prices will remain under pressure in the first half of 2025 due to high supply levels, but long-term trends are expected to improve [34][35] Wheat - Global wheat production is expected to rise by 8.81 million tons (approximately +1.10%) to 80.852 million tons for the 25/26 season, with total usage increasing by 4.38 million tons (approximately +0.55%) [43][44] - The overall supply of wheat remains ample, and prices are expected to stabilize at lower levels [43] Beef - The USDA predicts a significant reduction in U.S. beef supply for 2026, with prices expected to rise by 15.2% in Q2 2025 and 14.1% in Q3 2025 [5][7] - The domestic beef market is expected to see a price increase despite seasonal trends, indicating a potential upward cycle for beef prices [5][7] Pork - U.S. pork production is expected to increase by 1.33% in 2026, with consumption growth slightly outpacing supply [7][8] - Domestic pork prices are projected to decline, but low-cost producers are expected to maintain profitability [7] Poultry - U.S. poultry supply is expected to recover in 2026, with domestic demand in China anticipated to improve [7][8] - The report notes that high pathogenic avian influenza impacts are diminishing, which may support recovery in poultry production [7] Eggs - U.S. egg production is projected to increase by 6% in 2026, with domestic supply expected to remain ample throughout the year [8][9] - The report indicates that egg prices may face downward pressure due to high supply levels [8][9]