Hog cycle nearing the bottom, with supply contraction likely to drive price recovery from 2H26

Overview

The report focuses on China's hog cycle and the investment opportunity in Muyuan Foods. Goldman Sachs points out that current hog prices are below expectations mainly due to peak shipment growth, delayed supply exit, and seasonal weak demand; however, against the backdrop of widespread industry cash losses, policy constraints, and declining sow inventory, current prices are already near the cyclical bottom, and industry supply-demand dynamics are likely to shift to shortage in 2H26.

Core views

The core views include: first, the hog cycle is mainly driven by supply, while demand is relatively stable; second, sow inventory has declined since mid-2025 and is expected to be down about 14% cumulatively by mid-2026 versus June 2025; third, PSY improvement will partly offset the decline in sows, but the pace of improvement is expected to slow; fourth, industry commercial hog shipments are expected to start declining from 2Q26E and continue through 2H26E and 2027E; fifth, with its low cost, leading market share, and integrated capabilities, Muyuan has better earnings elasticity in the cyclical recovery.

Analysis framework

The report uses frameworks including supply-demand balance, sow inventory, PSY, secondary fattening, feed consumption, cost curves, asset value, and earnings sensitivity to assess the hog price cycle and Muyuan's valuation. Muyuan's target price is based on the average of its near-term 12-month P/E valuation and discounted forward 2030E valuation.

Methodology notes

• Industry cycleSow inventory and PSY supply model

  Use changes in sow inventory and PSY to forecast trends in commercial hog shipments.

  The report believes China's hog cycle is mainly supply-driven, so it uses trends in sow inventory, PSY, secondary fattening, and feed consumption to judge future shipment volumes and price direction.

• Supply-demand analysisPork supply-demand balance sheet

  Compare domestic supply, imports, demand, and net market balance.

  The report expects the market to shift from about 3% surplus in 2025A and 1H26E to about 7% shortage in 2H26E and about 9% shortage in 2027E.

• Valuation methodsAsset value and earnings sensitivity

  Use EV/head, unit net profit, and P/E scenarios to measure downside protection and upside potential.

  The report believes Muyuan H shares offer an attractive risk-reward profile relative to replacement value, historical lows, and mid-cycle value.

Asset mapping & comparison

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

• Muyuan Foods (A/H)

  Core recommended name

  Strengths

  Low cost, leading market share, integrated breeding, feed, and slaughtering businesses, and long-term potential for improving free cash flow.

  Weaknesses

  Earnings remain highly sensitive to the hog price cycle, and 2026E earnings were cut 17% due to lower price assumptions.

  Comparison

  The report states that Muyuan's 2025A shipment volume was 78.0mn heads, with a 10.8% market share, ranking first among hog producers in China and globally.

  Risks

  Hog price uncertainty, disease control, execution of cost reduction, changes in protein demand, and management generational transition.

• Wens Foodstuff Group

  Peer comparison name

  Strengths

  As a large hog producer, it can benefit from industry supply contraction and price recovery.

  Weaknesses

  Valuation sensitivity shows limited upside in the mid-cycle scenario and downside in the asset value scenario.

  Comparison

  The report compares its earnings and asset value sensitivity with Muyuan H and NHL.

  Risks

  Uncertainty in hog prices, cost curve, and the pace of cyclical recovery.

• New Hope Liuhe (NHL)

  Peer comparison name

  Strengths

  Has earnings elasticity under a high-cycle scenario.

  Weaknesses

  Asset value scenarios at trough and mid-cycle show significant downside pressure.

  Comparison

  The report's scenario analysis shows NHL has substantial downside under both trough and mid-cycle asset value scenarios.

  Risks

  Risks from cost, prices, supply recovery, and demand changes.

Key data

• Current hog priceRmb8.7/kg, as of April 15, 2026The report says this is the lowest level in the past 25 years.
• Expected 2H26E hog priceRmb15.0/kgA significant rebound from the current price.
• Expected 2027E hog priceRmb15.3/kgReflects continued supply-demand shortage.
• Sow inventory forecast25.0mn headsExpected to decline 11% versus December 2025 and 14% versus mid-2025.
• Change in commercial hog shipments2Q26E -4% yoy，3Q26E -6% yoy，4Q26E -7% yoyBased on a PSY-adjusted model.
• Supply-demand balance2H26E -7%，2027E -9%The market shifts from surplus to shortage.
• Muyuan 2025A shipment volume78.0mn headsEquivalent to a 10.8% market share in China; the report describes it as the largest hog producer in China and globally.
• Muyuan target priceRmb58.0/HK$64.0Cut from Rmb62.0/HK$68.0.

Impact & implications

If Goldman Sachs's view materializes, the rebound in China's hog prices from 2H26 should improve profitability for farming companies, and low-cost leader Muyuan's earnings elasticity and free cash flow may outperform the industry. From a valuation perspective, current share prices have some downside support from asset value, while mid-cycle earnings scenarios imply substantial upside.

Risks

• Hog price uncertainty.
• Disease prevention and control risk.
• Cost-saving execution may fall short of expectations.
• Changes in protein consumption demand.
• Management generational transition risk.
• Secondary fattening may disrupt the cycle.
• The decline in sow inventory is not fully consistent with feed consumption data and requires continued observation.

What to watch

• Whether commercial hog shipments turn to yoy decline as expected from 2Q26E.
• Whether sow inventory continues to contract toward around 25.0mn heads.
• Whether the pace of PSY improvement continues to slow.
• Whether secondary fattening re-emerges and disrupts supply.
• Whether feed consumption trends validate actual inventory changes.
• Whether benchmark hog prices in 2H26E recover to around Rmb15.0/kg.
• Progress in Muyuan's cost reduction, disease control, and free cash flow improvement.