Pork prices fall below cost line, Hong Kong pork stocks decline collectively: The bottom of the pork cycle, a turning point is brewing

Starting in August 2026, the Hong Kong stock market experienced increased volatility. The Hang Seng Index closed at 25530.28 points on August 6th, down 385.54 points, or 1.49%, while the Hang Seng Tech Index saw a decline of 2.28%. Against the backdrop of overall market pressure, pork stocks in the Hong Kong agricultural sector became a focus of market attention—however, unlike the agricultural sector's repeated outperformance in July, the leading decliners this round were the leading live pig breeders who had previously garnered high expectations from investors. Pork Stocks Decline Across the Board: Falling Pig Prices Below Cost Line as the Trigger On the morning of August 4th, pork concept stocks in Hong Kong fell collectively. Dekang Animal Husbandry dropped by 3.6%, Muyuan Shares fell by over 3%, COFCO Jiajiakang fell by 1.8%, and Wanzhou International also declined. The low pig prices were the direct trigger for the market downturn. Data shows that as of August 3rd, the national average price for live pigs sold was around 10.32 yuan/kg, and the main futures contract for live pigs, 2609, closed at 10690 yuan/ton, falling by over a thousand points in just two weeks from the high in July, a cumulative drop of over 15% from the high in early July, and setting a new low since the contract's listing during the trading day. What is more concerning is that current pig prices have been running below the industry average production cost line. This means that breeding enterprises are generally incurring losses, and even leading companies known for cost control cannot escape this situation. The profit margin of the live pig breeding business has been significantly squeezed, becoming the core variable suppressing the stock prices and valuations of related listed companies. Earnings Forecast Confirms Industry Winter: COFCO Jiajiakang Turns from Profit to Loss in Mid-term Behind the market downturn is the direct deterioration of the fundamental performance of listed companies. COFCO Jiajiakang recently released an announcement stating that the company's owners were expected to incur a loss of approximately 1 to 2 billion RMB for the first half of the year ending June 30, 2026, before fair value adjustments of biological assets, whereas in the same period in 2025, it recorded a profit of approximately 198 million RMB, marking a shift from profit to loss year-on-year. The announcement also revealed that the company has significantly improved breeding costs through genetic research and development, optimized procurement, production, and health management, and hedged some operating risks using live pig futures tools, while its brand and feed businesses also performed well. However, these measures were still unable to fully offset the impact of falling live pig sales prices on breeding performance. COFCO Jiajiakang's experience is not an isolated case. In the industry-wide environment where pig prices remain below cost, larger breeding enterprises often face greater cash flow loss pressure. In the Hong Kong stock market, core players in the breeding chain such as Muyuan Shares, Dekang Animal Husbandry, and Wanzhou International all experienced varying degrees of pullbacks in early August, following the sector. In-depth Supply and Demand Analysis: Coexistence of Short-term Supply Slack and Long-term Capacity Deleveraging Why did pig prices rapidly decline after surging in July? Industry insiders point out that this round of decline exhibits the typical characteristics of "both supply and demand weakness, bottoming out through volatility," with short-term supply pressure being the core reason. * Inventory Release Continues: The inventory of live pigs corresponding to previously high-yielding sows remains high, and the overall industry output volume is large. The pace of large-scale pig farm output resumed in mid-to-late July, leading to a significant increase in market supply. * Culling and Secondary Fattening Realization: The average weight of live pigs sold remains high at around 127 kg. Large-weight live pigs, which were previously fattened and held, are being sold in succession, objectively increasing the market supply of pork.

Frozen inventory is high: Weak end-consumer demand has caused the slaughter rate of fresh pork to fall to a historical low, leading to a large amount of white-cut pork being put into storage. The frozen storage capacity utilization rate of major national slaughterhouses has climbed to a historical high of around 26.5%, and a massive hidden supply could be concentrated and sold off at high levels.

Consumption enters the off-season: In July and August, the pork consumption enters a traditional seasonal off-season. Poultry, beef, mutton, and aquatic products are continuously diverting pork demand due to their cost-effectiveness, and slaughterhouses generally maintain low operating rates with needs-based procurement.

However, looking at the longer cycle, capacity destocking is accelerating. According to data from the Ministry of Agriculture and Rural Affairs, as of the end of the second quarter of 2026, the national breeding sow stock is approximately 37.8 million head, a decrease of 3.2% month-on-month and 6.5% year-on-year, just one step away from the target reasonable stock of 37.5 million head. Under the dual pressure of long-term industry losses and policy regulation, inefficient capacity is accelerating its clearance, laying the groundwork for a reversal in the next pig cycle.

Policy Direction Adjustment: From "Stabilizing Prices" to "Stabilizing Production"

It is worth noting that the statement from the July meeting of the Central Political Bureau regarding the pig farming industry expanded from "stabilizing pig products and other agricultural products" at the April meeting to "stabilizing pig production and prices." Guotou Securities analysts believe this may mean that the policy focus is shifting from "price" to "production," and under the dual pressure of policy guidance and market-driven losses, pig farming capacity is expected to undergo non-linear acceleration in destocking.

At the same time, the Central Document No. 1 for 2026 and the latest "Comprehensive Regulation Implementation Plan for Pig Capacity (2026 Revision)" issued by the Ministry of Agriculture and Rural Affairs clearly state that the normal stock of national breeding sows will be locked at around 37.5 million head, and the deadline for completing capacity reduction tasks has been advanced to the end of the third quarter. In terms of the safety net mechanism, the state and local governments have normalized the procurement of pork. Procurement will be initiated when the pig feed ratio falls below the first-level warning line, forming a regulatory tone of "supporting without inflating," promoting the transformation of the traditional pig cycle into a stable state of "low peak and long slope."

Institutional Divergence and Consensus: Reversal Turning Point May Be in Q1 2027

Faced with the bottoming pig prices, institutional views show subtle divergence. Open Source Securities believes that the short-term strong price premium and the reluctance to sell by retail investors provide some support for pig prices, but the delayed pig source supply from large-scale farms in July, the planned increase in August, and the impending realization of previous second-generation pig sources will all limit the upward price space, and pig prices are likely to continue a slightly weak oscillating trend in early August.

Institutions with a more bullish outlook are focusing on the longer cycle turning point. Guotou Securities predicts that considering the significant and continuous destocking of breeding sows starting in the second quarter of 2026, and the approximately 10-month lag for sow capacity to transmit to market pig slaughter, the first quarter of 2027 may be the turning point for profitability reversal in pig farming. Huatai Research pointed out when giving a "Buy" rating to Dekang Animal Husbandry that it is highly likely that the industry will maintain cash flow losses in the second and third quarters of 2026, the destocking of breeding sows is expected to accelerate, and combined with policy regulation, efficiency improvement bottlenecks, and rising raw material pressures, the rebound potential of this pig price cycle may exceed that of the 2021-2024 cycle, and the sector has currently entered the critical stage of left-side positioning.

Leading Enterprises Build Up Counter-Cyclical Strength: Dekang Animal Husbandry Completes US Dollar Convertible Bonds

In the industry winter, leading enterprises did not passively wait. DeKangnongmu announced on August 4th that it had completed the issuance of zero-coupon convertible bonds maturing in 2027 with a total principal amount of $100 million. The bonds are listed on the Vienna Stock Exchange (Vienna MTF) with an initial conversion price of HKD 54.08 per H share. The net proceeds were approximately $99.7 million, of which $39.88 million was used to repay some bank loans of the group, $29.91 million was used for feed procurement in daily operations, and the remainder was used to purchase raw materials and other production inputs. This was DeKangnongmu's first refinancing since its listing in December 2023, demonstrating the strategic intention of leading enterprises to optimize their financial structure and build momentum for a new cycle by replacing high-cost debt with zero-coupon convertible bonds and supplementing working capital. Investment Perspective: How to position in Hong Kong stock agriculture stocks during the bottoming phase Overall, the current live pig market presents a complex situation of "short-term volatility bottoming and long-term recovery building." For Hong Kong stock investors, the pig cycle sector is in a typical "left-side positioning" phase: in the short term, the pressure from performance losses due to pig prices falling below the cost line will still suppress stock performance; in the medium to long term, the accelerated liquidation of breeding sows, policy support, and consumption recovery during the Q4 curing and preparation season—three major positive factors are expected to resonate. Analysts suggest that when paying attention to the expectations of a pig cycle reversal, investors should focus on three high-frequency indicators: first, the actual slope of breeding sow inventory liquidation; second, the digestion progress of frozen product inventory; and third, the basis repair of the main contract of live pig futures. Attention must also be paid to the fact that in the context of increased sector volatility, the cost differences and balance sheet health among breeding leaders will become key differentiators, and companies with cost leadership and stable cash flow are more likely to release performance elasticity during the cycle reversal. As an important hub connecting mainland and global capital, the valuation gap and institutional advantages of the agriculture sector in the Hong Kong stock market are attracting increasing attention from south-bound funds. Although the pig cycle bottoming is prolonged, every period of deep losses is accumulating energy for the next upward cycle. For long-term investors who can withstand volatility, this moment may be a window to examine high-quality breeding targets and position for the cycle reversal.