Summary of the Conference Call on China's Hog Industry Industry Overview - The hog industry in China is currently facing significant challenges, with hog prices dropping to approximately RMB10/kg year-to-date, leading to widespread losses across the sector [1][13][14]. - The first quarter of 2026 is expected to see the worst net losses for hog breeding companies, with all companies under coverage anticipated to report losses due to prices falling below breakeven costs [1][14]. Key Insights Current Financial Performance - Companies with strong cost control, such as Muyuan and Wens, managed to remain marginally profitable in January-February 2026, while others are expected to report losses [1][13]. - Impairment losses on biological assets are anticipated for all hog breeding companies in 1Q26, further impacting profitability [1][14]. Future Projections - A moderate upcycle in hog prices is expected in 2027, driven by a reduction in sow inventories, which is a leading indicator for hog supply [2][3][17]. - The average selling price (ASP) of hogs is projected to be RMB12.5/kg in 2026, with an anticipated increase to RMB14.5/kg in 2027 [3][17]. Sow Inventory and Production - Sow inventory reduction is expected to accelerate in 2Q26 as piglet prices fall below costs, which will support the hog price upcycle in 2027 [2][17]. - Despite a downward trend in sow inventory since 2022, improvements in breeding efficiency have kept hog supply ample, with a projected 2% year-on-year increase in supply for 2026 [3][15]. Company Ratings and Target Prices - **Muyuan Foods**: Upgraded to Buy from Hold, target price raised to RMB56.90 from RMB46.60, with a projected net profit of RMB14,797 million for 2026 [4][5]. - **Wens Foodstuff**: Upgraded to Buy from Hold, target price increased to RMB19.90 from RMB16.60, with a projected net profit of RMB5,151 million for 2026 [4][5]. - **Dabeinong**: Maintained Buy rating, target price set at RMB5.00, with a projected net profit of RMB548 million for 2026 [5][12]. - **New Hope**: Maintained Reduce rating, target price lowered to RMB6.10 from RMB6.20, with a projected net loss of RMB1,645 million for 2026 [5][11]. Risks and Considerations - Key risks include the potential impact of African Swine Fever, slower-than-expected industry capacity reduction, and higher-than-expected raw material price hikes [10][11]. - The hog breeding sector is sensitive to fluctuations in hog prices, which could significantly affect net profits, especially in the first quarter of 2026 [10][11]. Conclusion - The hog industry in China is currently in a challenging phase, with significant losses expected in the short term. However, a cautious optimism exists for a price recovery in 2027, contingent on sow inventory reductions and market adjustments. Companies with strong cost management are likely to navigate these challenges more effectively.

Summary of the Conference Call on the Hog Industry Industry Overview - The conference call focused on the **hog industry** in China, discussing market developments and price outlooks for hogs [2][3]. Key Points Capacity Trends - **Sow Herd Capacity Cuts**: The reproductive sow herd began to decline in July 2025, with a significant acceleration in cuts noted in October 2025 due to mounting losses. The sow inventory fell over **1% month-over-month** to **39.9 million heads** [3][4]. - **Small-Scale Producers**: Responsible for approximately **28%** of hog output in 2025, small-scale producers are the main contributors to capacity reductions. Large-scale producers also began to cut capacity as losses increased [3]. Cost Trends - **Production Costs**: Costs have decreased in recent years, attributed to lower feed costs and improved efficiency. Top-tier companies operate at an average cost of **Rmb 12–13/kg**, while smaller producers operate at **Rmb 13–14/kg**. With hog prices dropping to **Rmb 11.6/kg** in October and November, the industry has entered a loss-making phase [4]. Price Outlook - **Hog Prices**: Experts predict that hog prices will remain under pressure until mid-2026 due to persistent oversupply. The Ministry of Agriculture's target of **39 million heads** by year-end 2025 is deemed achievable. An inflection point for prices is expected in the second half of 2026, reflecting a typical **10-month lag** between sow herd cuts and market supply contraction [5]. Industry Consolidation - Continued consolidation in the industry is anticipated, with small-scale producers exiting the market. Companies with cost advantages are expected to outperform during this period [5]. Key Beneficiaries - **Muyuan Foods and Wens Foodstuff Group**: Both companies are well-positioned to benefit from the upcoming hog price upcycle, with Muyuan being highlighted as the top pick due to its cost advantage [6]. Risks Muyuan Foods - Risks include limited production cost savings due to rising feed costs, slower-than-expected hog destocking, lower-than-expected sales volume growth, and delays in the development of its downstream slaughtering business [8]. Wens Foodstuff Group - Risks involve limited cost savings from swine diseases and rising feed costs, sluggish hog prices due to slow de-capacity, lower demand from restaurants, and lower-than-expected average selling price growth of yellow feather broilers [9]. Conclusion - The hog industry in China is facing significant challenges with capacity cuts and price pressures expected to continue until mid-2026. However, companies like Muyuan and Wens are positioned to capitalize on future price recoveries, albeit with notable risks that could impact their profitability.