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 China is battling the world's fastest spreading outbreak of African
swine fever, an incurable pig disease that has been confirmed in 28
of its provinces and regions.
Livestock shares initially slid on the early outbreaks in August and
September. But they have climbed since November, even as outbreaks
continued and as transport curbs on infected provinces hit prices
and hurt profits at most producers.
Shares in Muyuan Foods Co Ltd, the No.2 producer, have doubled in
the past six months. No. 4 producer Jiangxi Zhengbang Technology Co
has surged more than 200 percent, while rapidly growing Tech-bank
Food Co Ltd is up 143 percent.
Graphic - Swine Stampede: Listed pork producers in China surge to
near record levels as investors bet on tighter supplies & govt
support - https://tmsnrt.rs/2BYgwdC
While listed companies still account for only a modest proportion of
China's annual production of 700 million pigs, they are growing
quickly as Beijing promotes modern farm techniques. Muyuan produced
11 million pigs last year.
The share price gains come even as most companies have forecast a
plunge in earnings for last year. In a preliminary report, Muyuan
said its 2018 net profit slid 78 percent to 520.2 million yuan
($77.7 million), after prices fell partly because of African swine
fever.
But analysts say prices for live pigs have bottomed and could rise
from 12 yuan per kilogram currently to as much as 20 yuan in the
second half, as supplies plunge and farmers face challenges in
restocking farms.
"Prices could rise quite high, quite quickly," said Xiong Kuan,
analyst at Cofco Futures, who expects a 20 percent drop in supplies.
Others say it could be as much as 30 percent.
Large players with low-cost modern farms that are better able to
resist disease are expected to reap good profits.
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They will also win support from the government, already worried
about supply. China eats half the world's pork, by far the country's
most popular meat, but much of the production comes from millions of
small farmers whose farms have been most at risk of disease.
"The government sees very clearly, among all the cases of African
swine fever, less than 20 percent took place on big farms. They are
encouraging big farms with good biosecurity measures to expand
production," said Feng Yonghui, chief analyst at Soozhu.com.
Last month the agriculture ministry urged farmers to quickly
replenish their herds as concerns grew that prices will rise rapidly
in the second half of the year.
And last week, Beijing issued a draft plan aimed at tackling the
disease and shoring up supplies. It called for the promotion of
high-quality farming companies in southern areas that need to
increase supplies and support for large-scale integrated processors
across the country.
Many big companies have continued to expand, eyeing future bumper
profits. Top 10 producer New Hope Liuhe produced 2.5 million pigs in
2018, up 50 percent on the prior year.
Muyuan raised 5 billion yuan in a share placement in December to add
new farms for 4.8 million pigs.
The expansion would help provide the market with stable supplies and
allow the company to "firmly grasp the opportunities from market
transformation," it said.
(Reporting by Dominique Patton; additional reporting by Hallie Gu;
editing by Richard Pullin)
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