Goldman Sachs believes China's hog cycle is approaching the bottom, with cash pressure potentially accelerating supply rationalization

Overview

This report discusses the bottom of China's hog industry cycle, the reasons for depressed hog prices, cash runway pressure, supply-demand forecasts, and the valuations of major hog farming stocks. Goldman Sachs believes that weak demand and slow supply adjustments by small and midsized farmers kept hog prices depressed for longer than expected in 1H26, but deep losses, cash constraints, policy support, and potential exits will accelerate the supply response and support a hog price recovery in 2H26.

Core views

The core view is that the industry is at a typical cyclical bottom, with cash losses evolving from earnings pressure into capital constraints; the culling of breeding sows and exits by some producers will reduce actual hog marketings; and supply-demand conditions may shift to a deficit in 2H26, driving a hog price rebound. At the stock level, Goldman Sachs prefers Muyuan Foods, which has cost advantages and leading scale, and maintains Buy ratings on its A/H shares; it maintains Neutral ratings on Wens and New Hope Liuhe because valuations already largely reflect earnings improvement or because of higher cost pressure.

Analysis framework

The report combines financial data from listed hog producers, unit cash costs, current hog prices, cash runway calculations, changes in the breeding sow herd, feed sales, fresh meat sales, and frozen product inventories to assess whether supply-side pressure is sufficient to trigger a cyclical inflection point. For valuation, it uses replacement cost, historical low EV/head, mid-cycle value, P/E, and SOTP methods to assess risk/reward.

Methodology notes

• Industry cycle analysisHog supply-demand balance model

  Determine the hog price cycle inflection point through the breeding sow herd, marketings, demand, and inventories.

  The report expects the productive breeding sow herd to continue contracting and actual hog supply to decline in 2H26, creating an approximately 5% supply deficit.

• Financial pressure analysisCash runway calculation

  Estimate how long a company can sustain losses using cash, liabilities, operating losses, and current hog prices.

  At current hog prices, the proportion of the 14 listed hog producers with less than six months of cash runway rose from approximately 30% at the end of 1Q26 to approximately 50% at the end of 2Q26, indicating rising capital constraint risk.

• Valuation methodologyReplacement cost and EV/head

  Measure bottom valuation using the enterprise value corresponding to per-head hog production capacity and the cost of rebuilding assets.

  The report believes Muyuan-H's current share price is below replacement cost valuation and historical low EV/head, providing attractive downside protection and upside potential.

• Valuation methodologyP/E and SOTP

  Apply P/E or sum-of-the-parts valuation to different business segments.

  Muyuan's valuation combines a near-term 12x P/E and a discounted 8x long-term 2030E P/E; Wens and New Hope Liuhe use near-term P/E and long-term SOTP based on business segments.

• Institutional model descriptionGS Factor Profile

  Goldman Sachs compares stocks' relative characteristics using growth, financial returns, valuation multiples, and composite indicators.

  This framework uses analyst forecasts and standardized rankings to measure a stock's relative position within the coverage universe and among peers.

Asset mapping & comparison

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

• Muyuan Foods A/H

  Core recommended security

  Strengths

  Cost advantage, leading market share, integrated farming and slaughtering operations, and potential for long-term free cash flow improvement.

  Weaknesses

  Current earnings remain constrained by low hog prices, and operational improvement depends on cyclical recovery and cost control.

  Comparison

  Compared with Wens and New Hope Liuhe, the report believes Muyuan's low-cost position and leading status are more prominent.

  Risks

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

• Wens Foodstuff Group

  Covered security, maintain Neutral

  Strengths

  A major Chinese hog farming company and a leader in yellow-feather broilers, with room for poultry margin recovery.

  Weaknesses

  The report believes current valuation already largely reflects the earnings growth outlook for its hog and poultry businesses.

  Comparison

  Compared with Muyuan, it has less compelling cost and valuation appeal, but a more diversified business mix.

  Risks

  Hog price volatility, pace of capacity expansion, disease and biosecurity costs, and fluctuations in chicken prices and sales volumes.

• New Hope Liuhe

  Covered security, maintain Neutral

  Strengths

  Operates across feed, hog farming, and food processing; overseas expansion could partly support feed business margins.

  Weaknesses

  Among leading hog producers, it has relatively high costs, while its feed business faces share competition from midsized and family farms.

  Comparison

  Compared with Muyuan, its cost position is weaker; compared with Wens, feed and overseas businesses have a greater impact.

  Risks

  Hog price movements, pace of capacity expansion, cost control, biosecurity, and disease control.

• Tianbang Food 002124.SZ

  Industry pressure case, not covered

  Strengths

  No sufficient evidence supports a positive view.

  Weaknesses

  The report mentions its restructuring in 2025 and an increase in litigation in 2026.

  Comparison

  An example of a listed hog producer facing intensified funding pressure during a depressed cycle.

  Risks

  Debt, restructuring, and litigation risks.

• Kingsino 002548.SZ

  Industry pressure case, not covered

  Strengths

  No sufficient evidence supports a positive view.

  Weaknesses

  The report mentions that it received a risk warning in April 2026 due to, among other matters, cumulative negative undistributed profits.

  Comparison

  Reflects rising financial pressure on some companies during the industry bottoming phase.

  Risks

  Capital constraints, risk warnings, and going-concern pressure.

Key data

• 2Q26 hog priceRmb9.5/kgBelow the average cash costs of large producers and marginal suppliers.
• Current spot hog priceApproximately Rmb9.4/kgCompared with the report's baseline forecast of Rmb15.0/kg for 2H26.
• Unit cash cost of large producersRmb11.6-12.9/kgEstimated average total unit cash cost range for large hog producers.
• Unit cash cost of marginal suppliersRmb13.3-13.7/kgMarginal suppliers have higher costs and greater loss pressure.
• Proportion of listed hog producers with less than six months of cash runwayApproximately 30% at the end of 1Q26; approximately 50% at the end of 2Q26Based on calculations for 14 listed hog producers and current hog prices.
• 2H26 supply-demand forecastApproximately 5% supply deficitCompared with an approximately 6% supply surplus in 1H26.
• 2H26 baseline hog price forecastRmb15.0/kgGoldman Sachs maintains this price forecast.
• 2027 hog price forecastRmb15.3/kgReflects the price assumption following cyclical recovery.
• Industry breeding sow target37.5mn headsThe Ministry of Agriculture and Rural Affairs' new target, approximately 4% below the current level.
• Muyuan 2025 marketings78.0mn headsEquivalent to approximately 10.8% of China's market share, ranking first in China and globally.

Impact & implications

If supply rationalization accelerates as expected in the report, hog prices and hog farming companies' earnings could improve simultaneously in 2H26, with low-cost leaders offering greater operating leverage and valuation recovery potential. From an investment perspective, Muyuan Foods is viewed as the preferred choice due to its cost advantage, leading scale, and low valuation; Wens and New Hope Liuhe face constraints from valuation, business mix, or cost position.

Risks

• The timing of the hog price recovery may continue to lag expectations.
• Domestic pork demand is weak; fresh meat sales declined 2-3% year over year relative to slaughter volume, while rising frozen product inventories create short-term destocking pressure.
• Supply adjustments by small and midsized farmers may lag those of large enterprises, delaying industry rationalization.
• Disease and biosecurity issues could affect costs, marketings, and earnings.
• If policy support or supply exits are insufficient, the projected supply deficit in 2H26 may not materialize.
• High-cost producers such as New Hope Liuhe face greater earnings pressure in a low-price environment.

What to watch

• Whether hog prices recover toward approximately Rmb15/kg in 2H26.
• Whether the breeding sow herd continues to contract toward the MOA target of 37.5mn heads.
• Whether listed hog producers' cash runways, leverage ratios, and default or restructuring events continue to deteriorate.
• Whether fresh meat sales, frozen product inventories, and end-market pork demand improve.
• Whether feed sales to small and midsized farms and family farms decline from elevated levels, confirming supply rationalization.
• Cost reductions and quarterly earnings inflection points at Muyuan, Wens, and New Hope Liuhe.