Summary of Key Points
The pig cycle has not truly reversed in the past few years because industry costs have continued to decline, allowing companies to withstand losses and resist reducing production capacity. Now that costs can no longer be reduced, companies are facing increasing cash flow pressures and may be forced to cut production, which could lead to a real reversal of the cycle. However, farmers' practices of re-fattening pigs and holding them back will slow down the process. It is important to monitor indicators such as cash flow and the inventory of breeding sows to confirm this trend.
I. Why Did the Pig Cycle Get Stuck in the Past?
The core issue was the continuous decline in costs. Over the past few years, people have said that the pig cycle has been " flattened," but this is actually due to steadily decreasing industry costs, resulting in companies incurring minimal or no losses and thus having no incentive to reduce production capacity.
- Three Reasons for Cost Reductions:
1. The impact of African swine fever is gradually fading, leading to more piglets being born from sows and higher survival rates.
2. Prices of feed materials like corn and soybean meal have dropped (by 40% by the end of 2024 compared to their peak).
3. Improvements in breeding efficiency (for example, the number of pigs produced per sow per year increased from 15.5 in 2021 to 23.94 in 2025).
- Result: Although the industry as a whole seems to be losing money, leading companies (such as Muyuan) have managed to reduce costs and still make profits. For instance, in the third quarter of 2023, when pig prices fell to 15 yuan/kg, the industry's average cost dropped to around 15 yuan/kg, but Muyuan still made a profit with a cost of 14.5 yuan/kg. As a result, it not only did not reduce its herd but also expanded production to gain market share. Without a reduction in capacity, pig prices quickly rebounded and then fell again, preventing the cycle from moving forward.
II. Why Could There Be a Reversal This Time?
The factors that drove cost reductions are no longer effective: the impact of diseases has subsided, feed prices are unlikely to drop significantly further, and breeding efficiency has reached its limit. This means that even if pig prices remain low, companies cannot offset their losses through cost cuts and will have to bear substantial financial burdens.
- Critical Point for Cash Flow Pressure: If a company incurs cash flow losses for three consecutive quarters, it may be forced to reduce production capacity. Listed pork companies have already experienced two consecutive quarters of negative cash flows. If pig prices remain below 11.5 yuan/kg (with industry cash costs between 11-12 yuan/kg), by the end of September 2026, three quarters will have passed, and the pressure to cut production will increase.
- Actual Situation of Capacity Reduction: Not all companies will reduce production; only those with high costs and financial difficulties will exit the market, while leading companies may expand. However, any reduction in capacity will create an opportunity for a reversal of the cycle.
III. Two Time Windows and Key Indicators to Monitor the Cycle
To determine if the pig cycle is truly starting, look at these two key points and indicators:
1. First Window: End of September 2026
- Monitor the change in the inventory of breeding sows (the core of pig production). A continuous decline indicates that companies are accelerating capacity reduction, which could trigger market speculation.
2. Second Window: July 2027
- It takes 10 months for breeding sows to produce market-ready pigs. If capacity reduction begins at the end of September, supply will decrease by July next year, potentially leading to a rise in pig prices and the realization of market expectations.
- Key Indicators:
- Cash flow performance of listed pork companies (whether they have lost money for three consecutive quarters).
- Changes in the inventory of breeding sows (whether it is decreasing).
IV. Interfering Factors: Re-Fattening and Holding Back Pigs Will Slow Down the Process
Two factors could delay the start of the cycle: farmers' practices of re-fattening pigs and holding them back before selling.
- What are Re-Fattening/Holding Back Pigs?
- Re-fattening involves keeping pigs until they reach the market weight; holding back means not selling them until prices rise. Both practices delay the market entry of pigs.
- Impact: In the short term, these actions reduce the number of pigs on the market, boosting prices and easing companies' cash flow pressures, thus delaying capacity reduction. However, when these pigs are sold later, they increase supply and slow down the overall process of capacity reduction.
- How to Assess: Pay attention to the price difference between fattened pigs (over 130 kg) and standard-sized pigs (110-120 kg). A larger price difference indicates that fattened pigs are more valuable, suggesting farmers are more likely to hold back or re-fatten them, which will delay the cycle. However, this only affects the timing, not the overall direction of the cycle—once costs can no longer be reduced and cash flow pressures become too high, capacity reduction will eventually occur.
Conclusion
The core logic behind a potential reversal in the pig cycle is that costs have reached their lowest point, forcing companies to reduce production due to financial constraints. However, the impact of re-fattening and holding back pigs must be considered. The general public can use indicators such as breeding sow inventory, cash flow of listed pork companies, and the price difference between fattened and standard-sized pigs to predict when the cycle may start. Investors should proceed with caution, as these analyses are for reference only.