The curtain has opened on reducing pig production capacity. Is it time to buy at the bottom?

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In April 2026, hog prices fell to their lowest levels since 2008. After a sharp decline in March, the Wind Hog Industry Index rebounded in April, with market expectations showing marginal improvement. Institutions generally believe that although the window for capacity reduction has opened, supply pressure remains, and the industry may continue to struggle at the bottom; hog prices have not yet bottomed out, but stock prices often precede hog price troughs, and the window for proactive investment is gradually opening.

Huatai Securities pointed out that since March, the industry has been in deep cash flow losses, and breeding sows have begun another round of reduction. As a core leading indicator for identifying turning points in the capacity cycle, confirmation of the reduction trend in breeding sow inventories indicates that a turning point for supply contraction is approaching. However, based on capacity and efficiency metrics, piglet supply will remain high in Q2 and Q3 2026, and cash flow losses and depletion in the industry are highly probable. Against this backdrop, nonlinear capacity clearing could occur at any time, possibly acting as a catalyst for the sector.

CITIC Construction Investment believes that current hog prices are below the cash flow cost of breeding enterprises, and the industry is in a stage of deep losses, but hog prices are expected to remain at the bottom for a period. Declines in the prices of piglets, two-way sows, and culled sows show that the industry is in a capacity reduction cycle, and the speed of reduction will determine the pace of supply contraction and price rebound. Hog farming stock prices historically bottom earlier than hog prices; the capacity reduction phase is a relatively high-return interval for sector performance. The current position is suitable for proactive investment, but future sector differentiation will appear, and only enterprises that are efficient and low-cost will gain a competitive edge.

Hog prices drop below historical lows, losses exceed previous cycles

The depth of this round’s decline in hog prices has exceeded most institutions’ prior expectations. According to Wind data, as of April 14, 2026, the national average hog price had fallen to 8.7 yuan/kg, down more than 41% year-on-year, the lowest since 2008; Q1’s average was 11.47 yuan/kg, a 24% year-on-year drop.

Looking at profitability indicators, CITIC Construction Investment’s calculations show that the current loss per self-bred self-raised pig has widened to 423 yuan, and the loss per externally purchased piglet is 269 yuan. Huatai Securities’ estimates indicate that the industry’s loss per head is about 450 yuan, exceeding the deepest weekly loss record in 2023. The industry began turning to losses in September 2025 and is now in a deep-loss phase.

Simultaneous losses in the piglet market further amplify industry pressure. The latest price for 7kg piglets is about 202 yuan per head, occurring earlier than in 2023, with simultaneous losses alongside commodity pigs. The price of 6.5kg piglets has quickly fallen from Q1’s average of 320 yuan per head to 206 yuan per head. The average price for culled sows has dropped from 9.19 yuan/kg at the beginning of the year to 6.81 yuan/kg, a decline of about 26%.

Breeding sow reduction resumes, initial confirmation of capacity contraction signal

Breeding sow inventory data is the core leading indicator for identifying turning points in this capacity cycle. According to Yongyi Consulting sample data, breeding sow inventory started reducing again in March after reductions in Q4 2025. The month-on-month changes from January to March this year were +0.65%, +0.73%, and -0.57%, respectively, with reduction resuming in March.

Policy-level controls are also increasing. According to CITIC Construction Investment, the Ministry of Agriculture and Rural Affairs proposed in June 2025 to cut the national breeding sow inventory by 1 million heads to 39.5 million. The latest meeting in 2026 further lowered the target to 36.5 million heads, a total reduction exceeding 11%. By the end of 2025, the national breeding sow inventory was about 39.61 million heads, about 101.6% of the normal stock, still above the latest policy target.

Looking at actions by leading enterprises, since Q4 2025, they have begun halting capacity construction, lowering market weights, and reducing breeding sow inventory. However, the progress varies across the industry, and the effectiveness of policy implementation needs to be continuously monitored.

Short-term supply pressure remains high, hog price bottoming needs time

Although capacity reduction has begun, supply-side inertia will continue for several months. According to calculations based on capacity and efficiency metrics, piglet supply in the industry will remain high in Q2 and Q3 2026, and cash flow losses and depletion are highly likely during this interval.

The inventory side is also under pressure. In March, the average slaughter weight of hogs nationwide was 128.51kg, a historically high level for the same period, up 1.45kg from February and up 0.50kg year-on-year. Currently, the industry’s average weight remains at the historical high of 128.6kg for this period, with destocking only just beginning for one week, which is often accompanied by further declines in hog prices.

Additionally, breeding sow inventory was high at the end of 2025, and there is about a 10-month lag effect between hog slaughter and breeding sow changes. This means there will still be inertia in slaughter numbers through May 2026, and the hog price bottoming process needs time to digest.

This round of capacity reduction may be stronger than previous, three factors reshape reversal magnitude

Huatai Securities research team believes that compared to the two rounds of capacity reduction in 2021 and 2023, this round’s reversal has several structural differences.

First, under the “anti-involution” policy background, it is much harder for group enterprises to expand against losses or obtain financing during business difficulties, making the clearing of low-quality capacity more smooth.

Second, raw material cost direction has reversed. The 2023-2024 reduction cycle accompanied declines in feed raw material prices, and increased slaughter weights partially offset capacity reduction; but currently raw materials are trending higher, especially corn in the destocking cycle, which intensifies short-term losses and capacity reduction and helps relieve inventory pressure in the next price upturn phase.

Third, the offsetting effect of efficiency improvement is somewhat weakened. From 2021 to 2024, the industry PSY (piglets weaned per sow per year) increased from 18.6 to 24.0, significantly offsetting capacity reduction; but from 2023 to 2025, the PSY at the top 10% of pig farms has fluctuated between 30 and 31, the variance has narrowed, and the rate of efficiency improvement may have slowed.

CITIC Construction Investment pointed out that if policy pressure and deep market losses resonate, and reduction accelerates, the subsequent price uplift will be larger and more certain; if reduction is limited, upside will be correspondingly restricted.

Corporate cash reserves under pressure, nonlinear clearing risk rises

The degree to which this round of deep losses erodes breeding enterprises’ balance sheets is another key dimension to observe the pace of capacity clearing. Calculated as the sum of major listed breeding companies’ year-end cash equivalents and trading financial assets divided by next year’s slaughter numbers, cash reserves per head have fallen from 419 yuan in 2021 to 197 yuan in 2025, with companies’ risk resistance capacity clearly weakening.

Against this backdrop, Huatai Securities believes nonlinear capacity clearing can occur at any time and act as a strong catalyst for the sector. CITIC Construction Investment also notes that continued declines in piglet prices and culled sow prices will be important indicators for assessing the depth of reduction.

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