Goldman Sachs believes China's hog cycle is nearing the bottom and continues to recommend buying Muyuan Foods

Overview

This report focuses on China's hog cycle and the investment opportunity in Muyuan Foods. Goldman Sachs believes that domestic hog prices have fallen to extremely low levels, with nearly all farmers operating at a loss. The exit of mid-sized farms, a decline in sow inventory, and policy controls will together drive supply contraction. As overcapacity eases after 2Q26, hog prices are expected to rebound cyclically in 2H26 and 2027.

Core views

The core views include: first, China's hog cycle is primarily determined by supply, while demand is relatively stable; second, declining sow numbers and profit pressure will cause hog output to fall by about 4% to 7% from the peak levels in 4Q25 and 1Q26 over the coming quarters; third, the market is expected to shift into deficit in 2H26, driving hog prices up to RMB 15/kg and to RMB 15.3/kg in 2027; fourth, Muyuan Foods, with its low costs, leading market share, and complete industry chain, offers relatively attractive risk-reward across different stages of the cycle.

Analysis framework

The report uses methods including supply-demand balance, sow inventory, sow productivity, fattening process, feed consumption, secondary fattening monitoring, industry cost curve, asset value valuation, and earnings sensitivity to assess the position of China's hog industry cycle and the valuation attractiveness of Muyuan Foods.

Methodology notes

• Industry Cycle AnalysisHog Supply-Demand Balance Framework

  Estimate the supply-demand gap using sow inventory, piglets per sow, average hog weight, imports, and demand.

  The report determines the cycle position through supply-side indicators and believes demand is relatively stable, so changes in sow numbers and productivity are the core variables for forecasting hog prices.

• Cost and Profitability AnalysisCash Profit and Cost Curve

  Compare spot hog prices with industry production costs to assess exit pressure and the pace of supply contraction.

  The current spot price of RMB 8.7/kg is below the cost of most farmers, resulting in negative cash profits across the industry and prompting mid-sized farms to reduce or exit supply.

• Valuation AnalysisAsset Value Valuation and Earnings Sensitivity

  Measure stock price risk-reward through asset replacement cost, historical lows, cycle averages, and earnings changes.

  The report believes hog-related stocks are attractive from an asset value perspective, and that Muyuan Foods still has meaningful upside relative to its cycle-average level.

• Company ValuationDiscounted P/E Valuation

  Use assumptions for 12-month market P/E and long-term P/E, and discount them back to 2026 at a 10% discount rate.

  Muyuan Foods' target price is based on the average of near-term and long-term valuation levels, using 12x P/E in the short term and a 2030 8x P/E discounted back for the long term.

• Factor AnalysisGS Factor Analysis

  Standardize and rank stocks by growth, financial returns, valuation, and composite indicators.

  This framework is used to compare the relative investment value of individual stocks versus the market and peers, but the report's core conclusions still mainly come from industry supply-demand and valuation analysis.

Asset mapping & comparison

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

• Muyuan Foods (002714.SZ / 2714.HK)

  Core recommended target

  Strengths

  A leading hog farming company in China with integrated capabilities in breeding, feed production, farming, and slaughtering/processing; 2025 hog shipments of about 78 million head, with costs lower than most peers.

  Weaknesses

  Profitability is highly dependent on the hog price cycle, and recurring earnings in 2026 are expected to decline 17% due to low hog prices.

  Comparison

  Compared with Wens Foodstuff and New Hope Liuhe, the report places greater emphasis on Muyuan's low cost, scale, and long-term free cash flow potential.

  Risks

  Uncertainty in hog prices, disease prevention and control, cost control, changes in protein demand, and transition to a new generation of management model.

• Wens Foodstuff

  Comparable hog farming company

  Strengths

  Also one of China's large hog producers and a beneficiary of an industry cycle recovery.

  Weaknesses

  In the asset value scenarios provided by the report, upside is lower than that of Muyuan Foods.

  Comparison

  The relevant analysis shows Wens Foodstuff has about a 33% downside probability and about a 5% upside probability, making its risk-reward less compelling than Muyuan Foods.

  Risks

  Hog price volatility, cost pressure, and the pace of industry supply recovery.

• New Hope Liuhe (NHL)

  Comparable hog farming company

  Strengths

  Has exposure to the hog business and may benefit from industry price recovery.

  Weaknesses

  In the report's relative scenarios, downside probability is relatively high.

  Comparison

  The relevant analysis shows NHL has about an 83% downside probability and about a 26% upside probability, implying higher risk.

  Risks

  Operating leverage, hog price volatility, cost control, and supply disruptions.

• China Hog Prices

  Core cycle variable

  Strengths

  After supply contraction, prices are expected to recover from low levels, driving earnings improvement for farming companies.

  Weaknesses

  Prices are affected by sow inventory, secondary fattening, policy, imports, and changes in demand.

  Comparison

  Forecast prices for 2H26 and 2027 are RMB 15/kg and RMB 15.3/kg, respectively, above the current RMB 8.7/kg.

  Risks

  Supply exits falling short of expectations, an expansion in secondary fattening, weakening demand, or continued cost changes.

Key data

• Current Domestic Hog PriceRMB 8.7/kgAs of April 15, the lowest level in the past 25 years.
• 2H26 Hog Price ForecastRMB 15/kgA significant rebound from current levels, reflecting a cyclical recovery after supply contraction.
• 2027 Hog Price ForecastRMB 15.3/kgThe report believes the uptrend may persist for a longer period.
• 2026 Hog Price Forecast RevisionCut by RMB 0.9/kgReasons include changes in hog prices and a decline in average industry costs.
• Industry Supply-Demand Balance7% deficit in 2H26, 9% deficit in 2027Previously, around a 3% surplus was expected in 2025 and 1H26.
• 2026 Supply ChangeTotal supply of 57.3 million tons, down 6% year-on-yearThe table shows total supply in 2026 declining versus 2025.
• Average Sow Inventory25.0 million head in 2026, down 12% year-on-yearReflecting policy controls and the squeeze on capacity from low profits.
• Muyuan Foods Hog Shipments78 million head in 2025About 10.8% of the China market, making it a leading hog farming company in China.
• Muyuan Foods Target PriceRMB 58 / HKD 64 per shareThe previous target price was RMB 62 / HKD 68 per share.
• Key Risks for Muyuan FoodsHog prices, disease, costs, protein demand, management transitionFrom the report's disclosure of risks to the target price.

Impact & implications

If the report's view proves correct, the hog industry chain will move from a low-price loss-making phase into a stage of supply contraction and price recovery, with low-cost leaders such as Muyuan Foods likely to benefit first. For investors, the more important questions now are whether supply is truly contracting, whether secondary fattening will disrupt the pace, and whether the hog price rebound will be sufficient to translate into earnings improvement.

Risks

• Hog price trends come in below expectations, delaying earnings recovery.
• Disease prevention and control risks may affect inventory, shipments, and costs.
• Feed, labor, and farming cost control may fall short of expectations.
• Changes in protein consumption demand may affect pork demand.
• The transition to a new generation of management model may bring execution risk.
• If secondary fattening expands, it may disrupt supply-demand balance and the pace of price recovery.
• Changes in the intensity or timing of policy controls may alter the path of supply contraction.

What to watch

• Month-over-month and year-over-year changes in sow inventory, especially whether it continues to approach policy control targets.
• Whether annual piglets per sow and production efficiency continue to improve or decline.
• Whether hog shipments, average hog weight, and feed consumption confirm supply contraction.
• Whether the share of secondary fattening expands and delays supply clearing.
• Whether domestic hog spot prices can continue recovering from the low level of RMB 8.7/kg.
• Whether the exit pace of mid-sized farms and smallholders matches the report's assumptions.
• Improvements in Muyuan Foods' unit costs, shipment volume, and free cash flow.