South Africa’s foot-and-mouth disease disruptions are accelerating progress in capacity reduction, and the livestock farming and breeding sector has drawn increased attention.

Ask AI · Why do deep losses accelerate the process of clearing excess capacity?

As hog farming continues to suffer severe losses, institutional insiders say attention should be paid to the potential catalyst of foot-and-mouth disease in South Africa:

1. Pork prices and profitability: As of April 6, according to Pig66.com, the national average price of live hogs is about 9.04 yuan/kg, and the week-on-week trend continues to fall. Last week, the average loss for home-bred and self-raised hogs was about 382 yuan per head, and the average loss for purchased piglets for fattening was about 227 yuan per head. At present, utilization rates for second-stage breeding pens and cold-storage inventory capacity rates are still improving. Although there are expectations of government stockpiling and pre-Qingming purchasing, the impact on boosting pork prices is limited, and the industry is still in the stage of bottoming out amid deep losses.

2. South Africa foot-and-mouth disease (potential catalyst): Recently, type O foot-and-mouth disease in South Africa was introduced from overseas and triggered a cattle outbreak. This virus has extremely strong transmissibility, and existing vaccines have no cross-protection effect, resulting in significant pressure on prevention and control. Although no large-scale disease among pig herds has been reported yet, it is still important to remain alert in case the disease spreads to pig populations, which could increase prevention and control costs and create a risk of passive deleveraging of capacity. Pay attention to its potential disruption to the hog supply side.

3. Bullish on accelerating capacity deleveraging:

Deep losses: Pork prices have remained at low levels. Combined with recent pressure on feed costs, this further squeezes the survival space of small and medium-sized farming entities.

At the same time, piglet prices in the peak season are not strong, and losses have already appeared; the decline in the culling sow price shows that capacity is being steadily cleared.

Policy regulation: The policy side has increased its efforts to regulate hog production capacity, which is expected to help supply and demand adjust more quickly.

Conclusion: Bullish on the accelerated deleveraging of breeding sow capacity, and watch for opportunities in the livestock and breeding sector.

【CSI Livestock & Breeding Index ETF Positioning】

1. High-quality targets: “High exposure to hogs” and high concentration;

2. A style rotation tool: A style allocation instrument, as a potential holding in a “growth-value” style rotation strategy;

3. A left-side allocation tool: undervaluation and low positioning—an instrument for a cyclical build-up when industry sentiment rebounds.

Related product: Ping An CSI Livestock & Breeding ETF (516760.SH).

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