Summary of Key Points
Muyuan Foods, the company with the lowest cost (11.6 RMB/kg) and the largest scale in the pig farming industry, reported a loss of 5.7 to 6.7 billion yuan in the first half of 2026. The reason is that pork prices dropped below its cost threshold, reaching just over 9 RMB/kg. This situation reflects the cyclical nature of the pig farming industry, where supply is determined by the number of sows kept 10 months in advance; currently, the industry is experiencing overcapacity. Although efforts are being made to reduce capacity, the improvement in sow efficiency has only partially offset this effect. There is disagreement in the market regarding Muyuan's valuation: some believe in a reversal of the cycle (with rising pork prices leading to higher profits for Muyuan), while others are skeptical about its long-term profitability (stabilized but lower profits due to its integrated business model). Muyuan plans to address this crisis by reducing production and expanding its slaughterhouse operations and overseas businesses.
Detailed Analysis
1. "Why Did Muyuan, with the Lowest Costs, Still Lose Money? Pork Prices Dropped Below the ‘Bottom’?"
How low are Muyuan’s costs? In March 2026, the total cost of raising one pig was 11.6 RMB/kg, more than 2 RMB lower than the national average. However, in the first half of the year, pork prices fell to 9.69 RMB/kg, resulting in a loss of over 1 RMB per kilogram sold.
Why are pork prices so low? The pig farming industry has a 10-month lag: the current number of sows determines the supply of fattened pigs 10 months later. At the beginning of 2025, both Muyuan and the entire industry were expanding capacity (Muyuan’s peak sow population reached 3.62 million), leading to an oversupply of fattened pigs in 2026 and a sharp drop in prices. Even with its low costs, Muyuan could not withstand prices below its cost base.
2. "The Moat Isn’t Breached; It’s Just a Dry Season"
Many question whether Muyuan’s cost advantage is no longer effective. However, this is not the case:
- All 12 pig farming companies in the industry lost money in the first quarter, with each company incurring losses of over 300 RMB per pig, while Muyuan only lost 66 RMB.
This “deep moat” means that during tough times (low pork prices), other companies may fail quickly, but Muyuan can sustain longer. Its goal is not to avoid losses altogether but to minimize them, so it can recover first when prices rise.
3. "Why Is Capacity Reduction So Slow? Improved Efficiency Has Offset Production Cuts?"
Authorities have been reducing the number of breeding sows (the target level was lowered from 41 million to 37.5 million), but the effect on capacity reduction is not significant. The key factor is the improvement in sow efficiency (PSY: the number of piglets born per sow per year). Muyuan’s PSY increased from 26.7 in 2024 to 28.3 in 2025, meaning each 100 sows produce 160 more piglets; the industry-wide PSY also increased from 16 in 2018 to 25-26 in 2025. Therefore, even though the number of sows has decreased, the total number of piglets remains high, leading to continued overcapacity. The reduction in the target level reflects the ineffectiveness of previous measures due to improved efficiency.
4. "What’s the Market Arguing About? Two Perspectives on Muyuan”
There are two main views on Muyuan’s valuation:
- Cycle Reversal Camp: They believe that pork prices will eventually rise, and with Muyuan’s lowest costs, it will profit the most when prices recover. Muyuan’s 17.9 billion yuan in profits in 2024 is evidence of this; the deeper the loss now, the closer it is to a potential turnaround, making it a high-risk but potentially high-return investment.
- Stable Profit Camp: They compare Muyuan with Smithfield in the U.S., which has an integrated business model and earns several dozen RMB per pig. They argue that Muyuan will eventually reach a stable state of lower profits due to its integrated approach, limiting its valuation.
Additionally, concerns from 2021 (high cash reserves and loans) have not been substantiated but still affect market sentiment. Muyuan has taken steps to stabilize investor confidence through dividends (7.4 billion RMB in 2025), executive share purchases (400-500 million RMB), and H-share repurchases (300-500 million Hong Kong dollars).
5. "What’s the Future? Supply in 10 Months and New Business Opportunities”
Whether pork prices will rise depends on supply in 10 months, which is influenced by the current number of sows (37.8 million as of June 30, just 300,000 short of the target). If sow numbers continue to decline, prices may rise. Muyuan’s new businesses are also worth watching: its slaughterhouse operations turned profitable for the first time in 2025, and it is fully utilizing its capacity. Its overseas expansion (Vietnam) uses 60% of the funds raised from the Hong Kong stock market to explore international markets. Whether these will become new growth drivers remains to be seen.
Final Note
This analysis does not constitute investment advice. The pig farming industry is highly cyclical, and Muyuan’s future success depends on both a potential price reversal and the success of its new businesses. For laypeople, it’s sufficient to remember that in times of low prices, the company with the lowest costs will be the most resilient.