The greater the current difficulty, the higher the future profit? Goldman Sachs is eyeing China's pork.

The lower pork prices fall, the more the market becomes concerned about who can last until the next round of price increases.

China’s hog-breeding industry is going through a very tough bottoming phase. Hog prices have fallen to around 9 yuan per kilogram; losses have continued at the breeding end; piglet prices are also probing for a floor; and sector stock prices have returned to near the lows seen in the past two years. For the market, the question is no longer just “why are hog prices so low,” but rather how long low prices can persist, who will exit first, and whether the remaining companies can capture the next round of profits.

On June 30, analysts Trina Chen and others at Goldman Sachs said in a report that “with cash profits negative for nearly all producers, the supply response will accelerate, including reductions in breeding sows, policy-driven actions, and further capacity exits; we maintain our view that hog prices will recover in the second half of 2026.” Their benchmark assumption is that live hog spot prices will rebound from the current level of about 9.4 yuan per kilogram to 15.0 yuan per kilogram in the second half of the year.

In a market note on July 2, Jerry Shen from Goldman Sachs’ FICC & Equities team narrowed the focus further to the “cash runway”: by the end of Q2 2026, nearly half of listed hog companies’ cash reserves may be insufficient to support six months. The framework from Lei Yi’s team at Huayuan Securities and Zhu Junyi’s team at Shenwan Hongyuan also points to the same main line: the slump in hog prices itself is not the turning point; only the turning point that can be formed by sustained losses forcing capacity out.

Losses are not the news—running out of cash is the hard constraint

Goldman Sachs estimates that in Q1 2026, the unit cash cost for large-scale hog-breeding enterprises is about 11.6–12.9 yuan per kilogram, and for marginal suppliers about 13.3–13.7 yuan per kilogram. In the same period, the average hog price is 11.5 yuan per kilogram in Q1 and falls to 9.5 yuan per kilogram in Q2.

This means even low-cost companies have started to feel pressure, while high-cost players find it even harder to endure.

More importantly, it’s cash. Based on financial data from 14 listed hog enterprises, the calculations show that as of the end of Q1 2026, there are 4 companies whose cash runway is less than six months. By the end of Q2, under the assumption that other conditions remain unchanged, this number rises to 7 companies—close to half of the sample.

This is not just about losses on paper. A shorter cash runway changes corporate behavior: pausing expansion, disposing of assets, reducing restocking, culling sows, and even debt default or bankruptcy liquidation.

Some pressure signals have already appeared recently. For example, Tianbang Food signed a restructuring agreement in May 2025, and litigation increased in 2026; Jinxinnong received a risk warning in April 2026 due to negative cumulative undistributed profits; Shandong Longda issued risk warnings related to delisting and debt default; Guangdong Xingda Agriculture and Animal Husbandry applied for bankruptcy in June 2026.

Shenwan Hongyuan’s industry review also mentions that New Hope suspended some expansion projects, disposed of inefficient assets, and Yisheng Stock strategically exited the hog business. When placed in the context of the bottom of the cycle, these actions all point to the same outcome: capacity is starting to be constrained by cash flow.

Hog prices do not rebound for a long time—stuck between small and medium-sized breeders and the demand side

If you look only at leading enterprises, capacity reduction has already begun. In Goldman Sachs’ data, from mid-2025 to Q1 2026, the inventories of breeding sows among the top three hog producers decreased by about 8%.

But the industry is not determined solely by leading companies. Changes among small and medium-sized breeding entities are slower. Goldman Sachs’ tracking of commodity hog feed sales shows that in May 2026, sales were still up 25% year-on-year. This indicates that the commodity hog inventory corresponding to family farms and medium-sized breeders is still higher than that of the same period last year, although the trend has started to move downward.

The demand side has not helped either. Since March 2026, the proportion of fresh pork sales to slaughter volume has been weaker than seasonal performance, down 2–3 percentage points year-on-year; frozen product inventories increased in Q2. Using the SteelHome (Ganglian) metric cited by Shenwan Hongyuan, from 2022 to 2023, the fresh sales rate of slaughtering companies was still around 90%, but in 2026 it has dropped to around 80%; meanwhile, the frozen product warehouse capacity utilization rate rose from about 25% in 2023 to over 30%.

This means supply pressure has not been fully released, while demand cannot absorb it. Frozen product inventories will also become lagged supply, suppressing short-term price rebounds.

Efficiency improvements are also extending the bottom. The industry average PSY (the number of weaned piglets provided per sow per year) increased from 22.7 heads in 2023 to 24.3 heads in 2025. In other words, with the same number of sows, more piglets can be produced; having fewer sows does not necessarily translate immediately into a large drop in the number of market-ready hogs.

Costs are also falling. Shenwan Hongyuan estimates that the industry’s full cost was about 15.6–15.8 yuan per kilogram in 2023, and the industry average full cost declined to around 12.5 yuan per kilogram in 2026. The decline in costs increases resilience for leading companies, but it also makes it harder for the industry bottom to clear quickly.

This time, policy is more direct: reducing the target for breeding sows to 37.5 million

The policy-side change is an important difference between this cycle and 2023.

In May 2026, the Ministry of Agriculture and Rural Affairs released an updated version of the comprehensive regulation plan for hog production capacity, lowering the national normal on-hand inventory of breeding sows to around 37.5 million. This is another reduction since February 2024.

The updated plan also tightens the regulatory ranges:

• Green zone: 92%–103% of normal on-hand inventory;
• Yellow zone: 103%–106%, or 88%–92%;
• Red zone: above 106%, or below 88%.

This means that the policy target is not only about “stabilizing total volume,” but also places more emphasis on “stabilizing the cycle, optimizing structure, and improving quality.”

On June 22, the Ministry of Agriculture and Rural Affairs and the National Development and Reform Commission held a symposium on strengthening comprehensive regulation of hog production capacity. They required major hog enterprises to take the lead in reducing hog production capacity and output, take the lead in strictly controlling secondary fattening, take the lead in eliminating weak piglets, and take the lead in reducing market-ready slaughter weights. The main producing provinces were also asked to promptly revise their provincial capacity regulation plans.

Local actions have already been taken. On June 10, Shandong Province issued an updated plan to keep the target for on-hand breeding sows in the province stable at around 2.48 million, down 6.7% from 2.66 million in 2025; the on-hand inventory for large-scale pig farms is stabilized at more than 10,500.

The market implications of policies like these are straightforward: constraints are placed on new additions and blind restocking, and the exit of inefficient capacity is accelerated.

Second-half turning-point assumption: shift from 6% surplus in the first half to 5% shortage in the second half

Goldman Sachs’ supply-demand model provides a relatively clear path.

In its calculations, the hog market supply is about 6% surplus in the first half of 2026, turning into about 5% supply shortage in the second half. Looking at the full year, 2026 still has a slight surplus of 1%; by 2027, the supply-demand gap widens to 4%.

Assumptions on the supply side include:

• Ministry of Agriculture and Rural Affairs’ metric for ending on-hand breeding sow inventory: 39.6 million heads at the end of 2025, 38.4 million heads in the first half of 2026, and dropping to 37.5 million heads in the second half of 2026;
• Effective breeding sows: 30.8 million heads at the end of 2025, 29.4 million heads in the first half of 2026, and falling to 28.5 million heads in the second half of 2026;
• Market hog supply: 720 million heads in 2025, dropping to 701 million heads in 2026, and further declining to 665 million heads in 2027.

The hog price assumptions corresponding to this are: the benchmark hog price is 15.0 yuan per kilogram in the second half of 2026 and 15.3 yuan per kilogram in 2027.

Domestic high-frequency data are also validating the deleveraging pressure. In Huayuan Securities’ tracking of Yongyi data, the latest hog price is 9.57 yuan per kilogram; the utilization rate of secondary fattening pens has fallen to 27%; the average market weight has slightly decreased to 128 kilograms; and the price of 7-kilogram piglets has fallen to 157 yuan per head. If piglet prices probe further down, it indicates weaker restocking willingness, which will also pressure breeding farms to reduce inefficient breeding sows.

Shenwan Hongyuan’s tracking data on culled sows also shows signs of acceleration. The slaughter volumes of culled sow slaughter plants in four provinces from March to May increased year-on-year by 14.3%, 12.8%, 21.6%, respectively, and the total from March to May rose year-on-year by 16.2%.

However, capacity reduction has not yet reached a magnitude sufficient to confirm a reversal historically. Shenwan Hongyuan estimates that since the 2025 peak, the decline in breeding sow inventory is about 1.0%–4.1% under different metrics—still below the roughly 8%–9% reduction in the two previous cycles in the post-African swine fever period.

This is also the biggest divergence in market views for the second half: price elasticity already has the conditions to be there, but the magnitude of capacity reduction still needs to continue accumulating.

Stock trading is not about the hog price itself, but about who can survive until the reversal

Stock prices have already fallen through one round.

According to Huayuan Securities statistics, the SW hog farming sector fell 1.02% this week, and the sector has no gains versus its close on September 23, 2024, having fallen to a near two-year low range. Shenwan Hongyuan statistics show that as of June 23, the hog farming index had fallen by about 28.6% year-to-date; from April to June, it had cumulatively dropped 18.9% from a phase high.

Valuations are back to low levels too. Shenwan Hongyuan estimates that both the PB and market cap per head for the hog farming sector are in bottom ranges since 2016. Goldman Sachs also provides valuations from an asset value perspective: for Muyuan H, the current share price implies 19% upside space based on replacement cost valuation, 88% upside space based on historical low EV/head valuation, and 113% upside space based on mid-cycle value.

On individual stock judgments, Goldman Sachs maintains Buy ratings for Muyuan A/H and Neutral ratings for Wens and New Hope. In its coverage table, Muyuan A’s target price is 51.5 yuan; Muyuan H’s target price is 56.5 Hong Kong dollars; Wens’ target price is 14 yuan; and New Hope’s target price is 6.5 yuan.

Domestic institutions focus more on “low cost + financial resilience.” In Shenwan Hongyuan’s listed expected full farming costs for 2026, Muyuan is 11.7 yuan per kilogram, Wens is 11.8 yuan per kilogram, DKNH is 11.9 yuan per kilogram, Shennong Group is 11.9 yuan per kilogram, and New Hope is 12.0 yuan per kilogram. Huayuan Securities recommends DKNH and suggests paying attention to Muyuan, Wens, Shennong Group, Juxing Agriculture and Animal Husbandry, Tiankang Biological, Lihua Shares, COFCO Joycome, and others.

In this hog cycle, low cost is not only a matter of profit sensitivity; it is a matter of survival. Only companies with more stable cash flow, safer liability structures, and lower costs are likely to wait until prices recover.

The risk is not that “hog prices are low,” but that the bottom keeps getting prolonged

Several variables will change the path in the second half.

First, capacity reduction may fall short of expectations. If small and medium-sized farmers continue to hold on, and if secondary fattening and the behavior of holding inventories repeat, supply pressure may continue to be pushed back.

Second, demand may be weaker than expected. A decline in the fresh sales rate and a high level of frozen product inventories will weaken the upside price elasticity. Even if supply decreases, prices may not rise as quickly as predicted by the model.

Third, costs may rise again. Feed costs account for a high proportion of breeding costs, and fluctuations in corn and soybean meal prices will directly affect breeding profits.

Fourth, disease risk. African swine fever, foot-and-mouth disease, and others remain core variables for the breeding industry; once large-scale disruptions occur, the paths for capacity and prices will both change.

Therefore, this is not a simple story of “the lower the hog price, the more you should buy.” More accurately, low prices are approaching the industry’s endurance limit; if cash-flow pressure continues to transmit through the chain, the supply response will accelerate, and the probability of a hog price reversal will increase.

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