18 January 2026 | 6:29PM HKT Equity Research Muyuan Foods (002714.SZ) Leading low cost producer; strong free cash flow generation outlook; Maintain Buy 002714.SZ 12m Price Target: Rmb67.00 Price: Rmb47.33 Upside: 41.6% We revise down recurring net profit for Muyuan by 52% in 2025E, 21% in 2026E, and 14% in 2027E, to incorporate lower domestic benchmark hog pricing, and 1H25/3Q25 results. We expect earnings to recover in 2026E, driven by improving hog pricing from the bottom. Muyuan's competitive low-cost po ...

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.

Summary of Smithfield Foods Conference Call Company Overview - **Company**: Smithfield Foods (NasdaqGS:SFD) - **Industry**: Pork production and processing - **Founded**: 1936 in Smithfield, Virginia - **Business Model**: Vertically integrated pork producer and processor, major supplier of fresh and packaged meat products in the U.S. and globally [3][4] Key Business Segments - **Packaged Meats**: - Produces approximately 3 billion pounds of packaged meats annually across 25 categories, with 80% being pork-based and 20% a combination of beef and poultry [5][6] - Supports 14 different brands, down from 40 brands six to seven years ago, focusing on national, regional, and value brands [6][7] - **Fresh Pork**: - Harvests about 30 million hogs annually, with a focus on cost structure improvements through automation and technology [8][9] - Currently about 32%-33% vertically integrated, with plans to reduce hog production to about 10 million over the next two to three years [10][11] Demand and Market Position - **Consumer Demand**: - Demand for protein remains strong despite inflationary pressures, with Smithfield positioned across various price points to cater to different consumer segments [18][19] - Approximately 40% of retail business consists of private label products, allowing flexibility in pricing and consumer substitution [19][20] - **Market Trends**: - Pork is seen as a versatile protein option, available for all meal occasions, which supports its demand against higher-priced beef [23] Supply Chain and Pricing Outlook - **Hog Prices**: - Current hog cycle is balanced, with no significant expansion expected in the industry, leading to stable prices [27][28] - Anticipated moderation in hog prices for 2026, which should positively impact profitability and margins in the packaged meats business [31][49] Strategic Initiatives - **Product Mix and Innovation**: - Shift from low-margin products to higher-margin, everyday use products, with a focus on innovation in flavor profiles and product offerings [33][36] - Continuous improvement in cost structures and distribution networks to enhance operational efficiency [38][41] - **Vertical Integration Benefits**: - Vertical integration allows for better control over supply and cost structures, ensuring a steady supply of raw materials for packaged meats [42][44] Financial Outlook and Capital Allocation - **Capital Expenditure**: - Plans to invest approximately $400 million annually, with half allocated to automation and technology [65] - **M&A Strategy**: - Focused on disciplined acquisitions that solve specific operational challenges rather than expanding brand portfolio unnecessarily [66][67] - **2026 Outlook**: - Optimistic about growth in 2026, with expectations for improved margins and profitability across all segments [49][61] Additional Insights - **Health and Biosecurity**: - Significant improvements in herd health and biosecurity measures have been implemented, enhancing overall productivity [52][53] - **Market Adaptability**: - The company has shown resilience in adapting to market changes, including shifts in consumer preferences and external economic pressures [56][58] This summary encapsulates the key points discussed during the Smithfield Foods conference call, highlighting the company's strategic direction, market positioning, and financial outlook for the coming years.

Core Insights - The U.S. government shutdown has led to a data blackout affecting vital crop production estimates and market reports, crucial for grain and soybean trading [1][2][3] - Farmers are facing challenges due to low grain prices and uncertainties regarding crop damage from adverse weather conditions [2][3] - The lack of USDA reports, including the World Agricultural Supply and Demand Estimates (WASDE), has left traders and farmers without essential information for pricing and hedging commodities [4][6] Industry Impact - The disruption in data flow has created a "flying blind" market environment, making it difficult for stakeholders to make informed decisions [4][7] - The Commodity Futures Trading Commission (CFTC) has also suspended the release of weekly data on speculators' positions, further complicating market dynamics [5] - Traders are resorting to alternative methods, such as satellite imagery and technical pricing analysis, to gauge market conditions, leading to a lack of transparency [7]