China Aviation Securities: In September, the official breeding sows were adjusted downwards, and the losses in pig farming continued

According to the Zhitong Finance APP, AVIC Securities has released a research report stating that recently, the National Bureau of Statistics published data showing that in September, the number of breeding sows was 40.35 million, a year-on-year decrease of 280,000, down 0.7%, and a month-on-month decrease of 90,000, slightly down 0.2%. The official breeding sow adjustment was made in September. As losses in the pig farming industry continue and winter diseases rise, the number of breeding sows in the industry is expected to be further reduced, focusing on the potential impact of unexpected reductions in pig production capacity on the sector.

The main points of AVIC Securities are as follows:

Official breeding sow adjustment in September

Pig prices are at a low level, and losses in the pig farming industry continue. According to iFind, as of October 25, the national average price of external three yuan pigs was 11.83 yuan/kg, a week-on-week increase of 5.4%, a decrease of 7.2% compared to last month, and a year-on-year decrease of 32.7%, remaining at a historical low. The sluggish pig prices have led to losses in the industry. As of October 24, the profit from purchasing piglets in the industry was a loss of 289.07 yuan per head, while the profit from self-breeding was a loss of 185.68 yuan per head, an increase in losses of 52.50 yuan and 111.58 yuan compared to the same period last month.

In trading, the pig sector has medium to long-term allocation value, focusing on the potential impact of unexpected reductions in pig production capacity on the sector. First, the pig cycle continues to rotate, with pig farming in a loss zone, and in conjunction with the "anti-involution" policy guidance, production capacity is expected to be reasonably reduced, with expectations for pig prices and the performance of the pig sector likely to evolve. Second, the value attributes of leading enterprises in the pig industry are enhanced. Under long-term stability, the overall pig farming industry will maintain a certain profit level, while enterprises with advantages in breeding management and cost are expected to maintain good profitability. The financial pressure from previous capacity expansion in the industry has been released, significantly improving the free cash flow of quality enterprises in the industry, supporting the valuation of related pig enterprises. Third, the dividend attributes of leading enterprises in the pig industry are enhanced. Quality breeding enterprises focus on and continuously improve shareholder returns, and the long-term dividend attributes and allocation value of quality targets in the pig sector are expected to become more significant.

Breeding Industry

Sales of pig enterprises increased in September: In terms of volume, according to the sales data of sample listed pig enterprises, the total sales of pigs in September reached 7.6726 million heads, an increase of 3.89% month-on-month. Ten pig enterprises saw month-on-month increases in output, among which Shennong Group and Tianbang Food had month-on-month increases of 37.6% and 15.7% in September. In terms of price, the national average price of pigs decreased in September. According to the sales data of sample listed pig enterprises, the average price of pigs sold in September was 13.89 yuan/kg, a month-on-month decrease of 4.89%. In terms of average weight at slaughter, the average weight of pigs sold in July increased. According to the sales data of sample listed pig enterprises, the average weight of pigs sold in September was 102.4 kg, a month-on-month increase of 1.14%. Among them, WENS and Tiankang Biological had month-on-month increases of 1.2% and 2.3% in average weight of pigs sold in September. In terms of breeding profits, according to iFinD data, as of October 24, the profits from self-breeding and purchased piglet farming were -185.68 yuan/head and -289.07 yuan/head, respectively.

The breeding cycle drives the animal health sector. 1) The animal health industry is expected to recover alongside improvements in breeding operations. Historically, years with good breeding profits have seen higher sales in the animal health sector. 2) Competition in the animal health industry is optimizing. In recent years, competition in the animal health industry has been fierce, with outdated capacity expected to gradually exit, and small and medium-sized enterprises accelerating their exit, leading to an expected increase in industry concentration, benefiting large enterprises with strong R&D capabilities 3) The domestic animal protection enterprises have significant market potential. First, the pet veterinary drug sector is expected to accelerate domestic substitution. In August 2022, the Ministry of Agriculture and Rural Affairs required the acceleration of the production and market launch of new veterinary drugs for pets. With policy support, the substitution of domestic vaccines in the pet sector is expected to accelerate. Second, the approval and application of African swine fever vaccines are continuously advancing. Currently, some animal protection enterprises have obtained clinical trial approval for African swine fever subunit vaccines, and the market launch of the vaccine is gradually approaching.

Planting Industry

Under geopolitical disturbances, there is an emphasis on global food supply and demand. According to the USDA report's latest forecast for global food supply and demand in the 2025/26 fiscal year, there have been adjustments to the expected production of wheat, rice, corn, and soybeans.

Wheat: The global consumption of wheat for 2025/26 is expected to increase by 5 million tons, reaching 814.5 million tons, mainly due to increased feed and residual usage in the European Union, Australia, Canada, Russia, and Ukraine, as well as relatively small increases in food, seed, and industrial uses in several countries. The global trade volume is expected to increase by 1.2 million tons, reaching 214.7 million tons, with larger exports from Australia and the United States compensating for the reductions from Russia and Ukraine. It is expected that the global ending stocks for 2025/26 will increase by 4 million tons, reaching 264.1 million tons, mainly due to increased stocks in several exporting countries.

Rice: The global rice outlook for 2025/26 is expected to see increases in supply, trade, consumption, and stocks this month. The global supply is projected to be 800 million tons, reaching a record 729.5 million tons, as higher ending stocks partially offset reduced production. Trade is expected to remain virtually unchanged, with increased exports from Myanmar offset by reductions from Pakistan and several other countries. Global rice consumption is slightly adjusted upward, increasing by 200,000 tons to 54.22 million tons, with increases in India offset by reductions in Myanmar. The world ending stocks for 2025/26 are expected to be 18.73 million tons, an increase of 600,000 tons, mainly due to increased stocks in Pakistan and the United States.

Corn: The main changes in global coarse grain trade for 2025/26 include increased corn exports from the United States and Zambia, but decreased exports from Serbia, the European Union, Russia, and Tanzania. Imports of corn are adjusted upward for the European Union, Malawi, and Zimbabwe, while India's imports are reduced. Foreign corn ending stocks are reduced, mainly reflecting decreases in China and Russia, partially offset by increases in South Africa and Ukraine. The global corn stocks are projected to be 281.4 million tons, a decrease of 1.1 million tons.

Soybeans: The global soybean supply and demand forecast includes lower beginning stocks, lower production, lower crush volumes, higher export volumes, and reduced ending stocks. The reduction in beginning stocks is mainly due to an upward adjustment of Argentina's export volume for the previous marketing year. Global soybean production is expected to decrease by 500,000 tons to 42.59 million tons, due to declines in production in India, the European Union, and Serbia, while increases in production in Russia and the United States partially offset this. The soybean export volume for 2025/26 is expected to rise, mainly due to increased exports from Argentina, Russia, and Canada, while decreased exports from the United States and Ukraine offset this. Imports from Turkey, Brazil, Egypt, the European Union, and Serbia are increasing. Global soybean ending stocks are expected to decrease by 900,000 tons to 12.4 million tons, due to declines in stocks in Argentina, Bolivia, and Canada, while increases in stocks in the United States and Brazil partially offset this Focus on the revitalization of the seed industry in the planting sector. In 2021, the Central Committee for Deepening Overall Reform held its 20th meeting, which reviewed and approved the "Seed Industry Revitalization Action Plan." The series of policies for seed industry revitalization continues to advance. In addition, the commercialization of biological breeding is landing, accelerating industry expansion and reshaping the landscape. The Ministry of Agriculture and Rural Affairs has announced several genetically modified corn and soybean varieties approved by the National Crop Variety Approval Committee, and the promotion of these varieties is expected to continue, benefiting leading shape and variety enterprises. In trading, the expansion of the industry and the reshaping of the landscape under seed industry revitalization are expected to continue to unfold.

Pet Industry

Optimistic about the long-term logic of domestic pet food companies. First, the trend of pet consumption remains unchanged. According to Deloitte's "China Pet Food Industry White Paper," the compound annual growth rates of pet staple food, pet nutritional products, and pet snacks are expected to reach 17%, 15%, and 25%, respectively, by 2026. Second, domestic pet food companies are advancing their brand strategies, with a clear trend towards leading brands, and the competitive landscape is expected to continue to evolve. Third, some leading pet food companies are actively promoting globalization strategies, diversifying their production capacity and brand presence globally, which not only allows them to flexibly respond to tariff risks but also strongly supports the expansion of overseas business. Domestic pet food companies are expected to narrate their stories to global pet food enterprises.

Risk Warning: Consumer recovery may be less than expected, and there may be changes in policies and technological iterations