Is there still a chance for pig farming during the industry downturn?

In 2023, the pig cycle will continue to fluctuate at the bottom, and breeding enterprises will suffer comprehensive losses. As the industry leader, Muyuan Shares is no exception. At the darkest moment, Qin Yinglin, Chairman of Muyuan Group, recently spoke out through public channels, emphasizing the importance of technological innovation in pig farming and proposing that there is still a cost reduction opportunity of 600 yuan in the industry.

It is worth noting that in 2019, while pig farmers were making a lot of money and the market was consolidating production capacity, Qin Yinglin publicly expressed his prediction and concern about the downward trend of the cycle. As a leading enterprise deeply involved in the industry, Qin Yinglin once again discussed his views on cycles, saying, "The higher the profits, the more fearful they are. Enterprises need to work steadily, and once costs are reduced, they no longer need to be afraid of pig cycles

Industry leaders discuss pig cycle again

The rapid clearance of production capacity caused by the African swine fever epidemic led to the domestic pig market breaking through historical price highs in 2019. As the profits of breeding enterprises continue to rise, the industry's investment enthusiasm is also unprecedentedly high.

At that time, the domestic pig farming boom had reached its peak, but Muyuan Group, which had the largest breeding scale, was not optimistic about this "lying down win" market pattern.

According to the law, the industry will experience cyclical losses in 2022. Even if production capacity has dropped to a low point due to the epidemic, this cycle may be pushed back by a year and will come down again. If the African swine fever vaccine can be launched, this cycle of decline will be realized immediately. "In 2019, the market was full of voices about the pig farming industry, but Qin Yinglin, Chairman of Muyuan Group, poured cold water on the market. He publicly warned the market to be alert to the downside risks of the cycle and explained the volatility of the pig cycle: "Industry profit margins attract investors, attract capital, and drive changes in market prices. From the three indicators of gross profit margin, operating profit margin, and net profit margin, we can see that the cyclical fluctuations are particularly clear on an annual basis

In the end, the market trend did not exceed the expectations formed by scientific calculations. In 2022, the market price of live pigs fell at a high level, and the breeding industry suffered a comprehensive loss in 2023. After experiencing unprecedented prosperity, the pig farming industry has also entered a downturn.

Every time the profits are high, I worry about what the next low point will be, and the higher the profits, the more fearful I become. "At the beginning of 2024, Qin Yinglin publicly interviewed the media again, recalling the market environment in 2019. He admitted," At that time, our senior management sat down to discuss and found that if we continue to be driven by capital like this, we, like any industry with overcapacity, will not be able to lift our heads in the end

Realizing early on that high profits are unsustainable, Qin Yinglin has led Muyuan to pursue cost control in recent years, shifting from investment driven to technology driven.

He admitted that the trough of this cycle has exceeded expectations, and companies have been suppressed to the point where they cannot lift their heads. But one thing is certain, that is, consumers' demand for good quality and low price will not change. We cannot raise pigs at increasingly high meat prices. The value of our existence lies in their quality and affordability. Only in this way can the industry develop more healthily and steadily

From Hard Work to Technological Advancement

As an industry veteran who entered the field of pig farming in 1992, Muyuan Group has experienced the modernization and transformation of this traditional industry.

Qin Yinglin mentioned that pig farming used to rely on hard work, but from 2010 to 2020, the industry's development began to rely on investment and quantity expansion to support the technology and talent of large-scale enterprises. But nowadays, pig farming requires more technology, innovation, and intelligence. Enterprise development needs to be combined with contemporary technological progress. This is also why we need to do digital and intelligent breeding, "he said.

As is well known, feed is the main cost of pig farming, and soybean meal used in feed accounts for a significant proportion of the cost. For many years, China has mainly relied on imported soybeans from abroad. Forty percent of the imported soybeans each year need to be consumed by pig farming. Our pig farming technology in China is relatively backward, and the amount of soybean meal consumed is much higher than that in Europe and America, especially compared to Europe, whose feed soybean meal accounts for 4% -8%. However, China's feed soybean meal accounts for more than 17%, almost twice to three times that of Europe, or even higher

This kind of soybean meal waste has no value, it is purely caused by our outdated technology and equipment, "Qin Yinglin said.

Through precise formulas, Muyuan Group has achieved precise feeding and metering in recent years, and completed the application of low soybean meal. By developing and implementing low soybean diet technology, continuously replacing soybean meal with synthetic amino acids, the proportion of soybean meal used in Muyuan Group's feed has been reduced to about 5% or even lower.

According to publicly disclosed information, the average cost of Muyuan Shares from January to September 2023 was 15 yuan/kg, far below the industry average. The dispersion of the complete cost of pig farming has gradually decreased. From January to November 2023, the proportion of pig farming lines with a complete cost of less than 14 yuan/kg accounted for about 20%, and the proportion of pig farming lines with a cost of more than 16 yuan/kg accounted for about 15%.

As early as 2021, Muyuan had already shared its low soybean diet technology with the entire industry, revealing its secret of cost leadership in order to drive the industry to reduce soybean consumption.

Our current production of 30000 tons of isoleucine can drive the application of millions of tons of other amino acids in the future, reducing the consumption of at least 20 million tons of soybeans. In this way, China's pig farming can get rid of its dependence on soybeans, while also freeing up land and contributing to the country's food security. I think doing this is very valuable, "said Qin Yinglin.

There is still an opportunity to reduce costs by 600 yuan in the industry

We are currently in a difficult period of the pig cycle, and everyone is very anxious. However, every market has peaks and valleys, and in times of downturn, we must work steadily and see that there are still many opportunities in our industry. Despite the current industry difficulties, Qin Yinglin still has confidence in pig farming.

He believes that no one can avoid the pig cycle, but if the cost is reduced, there is no need to be afraid of the pig cycle. Compared to countries with advanced pig farming technologies such as the Netherlands and Denmark, there is still a big gap in China, which means that there is still a lot of room for development. If China's breeding level can reach the same level as Denmark, there is still at least 600 yuan of cost reduction space per pig.

It is worth noting that the cost reduction space proposed by Qin Yinglin is not just a mirage in the air. In 2023, when the pig farming industry suffered a comprehensive loss, some subsidiaries under Muyuan still achieved an annual profit of over 100 million yuan.

It is reported that in 2023, Huaxian Muyuan Company will produce 1.3 million pigs annually, with a net profit of 123 million yuan. Controlling feed costs and maximizing cost reduction and efficiency improvement are the key factors for the company to achieve countercyclical profitability.

Huaxian Muyuan has built its own feed factory and produces and uses its own feed. It can adjust the feed formula in a timely manner based on the cost-effectiveness of raw materials and adopt a low bean diet, greatly reducing feed costs. On the other hand, Huaxian Muyuan uses intelligent feeding technology and supporting equipment to accurately feed pigs according to their growth stages, reducing feed waste and thus lowering breeding costs.

In terms of pig health management, Huaxian Muyuan has implemented the "Sky Net Project" promoted by the group - a purification sky net built around 151 viruses, 181 bacteria, and 27 parasites involved in pig farming, which provides precise management of pathogens in the farm area.

Data shows that the survival rate of excellent employees in the conservation unit of Muyuan in Huaxian County reached 98.71%, and the feed ratio (how much meat does one kilogram of feed grow) was 1.5. The average cost of pig farming for Huaxian Muyuan Company in 2023 is 14.2 yuan/kg, a decrease of 0.67 yuan/kg compared to 2022, far below the industry average level.