China's hog cycle appears to have seen a bottom, with industry supply contraction supporting a price rebound

Overview

This report focuses on the Chinese hog cycle. Goldman Sachs believes that current hog prices are below prior expectations due to peak output expansion, delayed supply exits, and seasonal demand softness; however, with the spot price at Rmb8.7/kg putting much of the industry in cash loss, combined with policy constraints and supply-side attrition, cycle-bottom signals are relatively clear. The report also discusses valuation risk/reward for hog producers such as Muyuan Foods, Wens, and New Hope, with the clearest investment call being to maintain Buy on Muyuan A/H shares.

Core views

The core view is that the China hog cycle is mainly supply-driven, while demand is relatively stable. Goldman Sachs expects breeding sow inventories to continue falling under policy guidance and weak profitability pressure. Although rising PSY may partly offset supply contraction, market hog slaughter is still expected to trend downward from Q2 2026 onward and persist into H2 2026 and 2027. As supply-demand moves from surplus to shortage, prices are expected to recover from the bottom, improving the valuation risk/reward for leading hog producers.

Analysis framework

The report assesses supply changes using breeding sow inventory, PSY, market hog slaughter, second-stage fattening, feed consumption, and the cost curve, and combines supply-demand balance tables, pig price forecasts, asset-level valuation, and earnings sensitivity to evaluate the risk/reward of hog producers.

Methodology notes

• Supply-demand cycle analysisMarket hog supply forecast driven by breeding sows and PSY

  Use breeding sow inventories and PSY to forecast future market hog slaughter

  The report argues that China’s hog demand is relatively stable, so the cycle inflection is mainly determined by supply. Declining breeding sow herds will reduce future slaughter, while higher PSY will partially offset supply contraction.

• Cost curve analysisIndustry cash costs and supply-exit assessment

  Low hog prices trigger cash losses and supply exits

  At the current price of Rmb8.7/kg, almost all producers are facing cash losses, so Goldman Sachs expects medium-sized farms to be more likely to exit, creating a negative supply response.

• Valuation approachBlended near-term and long-term valuation method

  Combine 12-month market P/E with long-term discounted valuation

  Muyuan is valued using a blend of near-term and long-term metrics, with a 12x 12-month market P/E for the near term, long-term valuation based on an 8x P/E in 2030, and discounted back to 2026 at 10%.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Muyuan Foods A/H

  Core recommended security, with Buy rating maintained

  Strengths

  Cost advantage, leading slaughter scale in the industry, integrated breeding/feed/slaughter capability, and strong long-term free cash flow improvement potential.

  Weaknesses

  Its 2026 earnings forecast was cut 17% due to lower hog price assumptions, and it remains affected by the near-term hog cycle.

  Comparison

  Compared with Wens and New Hope, the report emphasizes Muyuan’s cost advantage and its globally leading scale.

  Risks

  Hog price uncertainty, disease control, cost-reduction execution, protein demand changes, and transition to a new generation of management.

• China hog farming industry

  Cycle recovery theme

  Strengths

  Industry-wide cash losses and policy discipline are driving capacity liquidation, and the supply-demand balance is expected to shift from surplus to shortage.

  Weaknesses

  Rising PSY may partially offset the decline in breeding sow numbers, and second-stage fattening may also disrupt supply.

  Comparison

  The industry cycle is supply-led, with relatively stable demand.

  Risks

  Supply exit may fall short of expectations, second-stage fattening may rebound, cost curves may change, and policy enforcement could weaken.

Key data

• Current domestic benchmark hog priceRmb8.7/kgAs of April 15, 2026, this is the lowest level in the past 25 years.
• Expected contraction in market hog slaughteryear-over-year decline of 4%-7% over the next several quartersBased on breeding sow and PSY trends, Goldman Sachs expects supply to turn in 2026 from Q2 onward.
• Breeding sow adjustmentabout 14% decline from June 2025The report estimates breeding sow inventory may fall to about 25.0 million head by mid-2026.
• 2026H2 hog price forecastRmb15.0/kgGoldman Sachs expects prices to rebound from depressed levels once supply-demand shifts to a shortage.
• 2027 hog price forecastRmb15.3/kgThe report expects further improvement in prices in 2027.
• Supply-demand balance7% shortage in 2026H2, 9% shortage in 2027Compared with around a 3% surplus in 2025 and 2026 H1, the supply-demand structure improves materially.
• Muyuan 2025 market hog slaughter78.0 million headRepresents a 10.8% share of the China market, making it a leading hog producer in China and globally.
• Muyuan target priceRmb58.0/HK$64.0Cut from the previous Rmb62.0/HK$68.0, but Buy on A/H shares is still maintained.

Impact & implications

If Goldman Sachs’ thesis materializes, the hog industry will move from a low-price loss-making phase into a phase of supply contraction and price normalization. Leading operators with lower costs, greater scale, and stronger cash flow improvement potential are more likely to benefit. Muyuan is viewed as a key beneficiary due to its cost advantage, leading market share, and integrated operations, but the target price reduction still signals that near-term pressure remains on hog prices and earnings expectations.

Risks

• Hog prices may rise less than expected, delaying profitability recovery for the industry.
• Failure in disease control could affect producers’ capacity and costs.
• Insufficient cost-reduction execution could weaken Muyuan’s relative advantage.
• Changes in protein consumption demand could affect pork demand.
• A rebound in second-stage fattening could disturb near-term supply and price rhythm.
• Demand and policy-driven de-capacity and industry discipline enforcement may be weaker than expected.

What to watch

• Whether breeding sow inventories continue to contract toward around 25.0 million head.
• Whether market hog slaughter from Q2 2026 turns negative on a year-over-year basis as expected.
• Whether widespread industry cash losses drive medium-sized farms to exit.
• Whether there is an unexpected rebound in second-stage fattening scale and feed consumption data.
• Whether domestic benchmark hog prices recover toward Rmb15.0/kg in H2 2026.
• Whether Muyuan delivers on cost reduction, PSY gains, mortality control, and slaughter integration.