Livestock and poultry farming sentiment on the rise, 2015 market outlook favorable
As of December 31, 2014, the CSI 300 Index rose 52% in 2014, while the agriculture, forestry, animal husbandry and fishery (Shenwan) tier-one industry index rose 16% cumulatively over the same period, far underperforming the broader market. This is related to the overall national macroeconomic environment in recent years, the weak nature of the agriculture, forestry, animal husbandry and fishery industry, relatively high agricultural product capacity and inventories, slow earnings growth of listed agricultural companies, the agricultural product price cycle and expected performance of national agricultural support policies.
From the beginning of 2014 to date, among the 8 tier-two industry indices, only the feed (Shenwan) tier-two industry index edged down 1.26%, while other sub-sectors rose to varying degrees. The forestry (Shenwan) tier-two industry index rose 52.55%, the largest gain, basically in line with the broader market index. The agricultural product processing (Shenwan) tier-two industry index followed, rising 29.78%, while the fishery (Shenwan) tier-two industry index rose 7.28%, the smallest gain.
The agriculture, forestry, animal husbandry and fishery industry is most closely linked to people's daily lives, and changes in its output and prices can have a great impact on people's production activities. Production in the agriculture, forestry, animal husbandry and fishery industry is highly cyclical and constrained by the limited nature of resources as well as relevant national policies.
For next year's industry, major brokerages have recently published their respective views one after another, generally optimistic about land transfer and reform of the purchase and storage policy, as well as the likely arrival of inflection points in farming and the seed industry.
An Industrial Securities research report said that the farming sector is the main investment theme for the agriculture, forestry, animal husbandry and fishery industry in 2015. Although this round of the pig cycle has been lengthened in time, it is currently in the upward channel of the pig cycle. In addition, before the end of 2014, pig prices welcomed a considerable rise and the boom is expected to continue into the fourth quarter of 2015, thereby achieving full-year profitability. For individual stocks, Muyuan Foods and Sunner Development are recommended.
The opportunities in the overall feed industry and vaccines are relatively ordinary. If there is a rally, its timing will also be relatively late. Because the total volume of the entire industry has not clearly returned, the sector will only have opportunities when volume begins to pick up.
Cosco Securities' 2015 industry strategy report believes that inflection points in farming and the seed industry are expected to arrive, in-depth reform will advance the substantive development of agricultural modernization, opening up entirely new development space for the industry, and the cyclical inflection point together with policy dividends will jointly raise the valuation of the agricultural sector.
A Great Wall Securities research report pointed out that the main theme for 2015 lies in the upward sentiment of livestock and poultry farming plus accelerated release of reform dividends such as land reform; focus on cyclical varieties with greater certainty and individual stocks benefiting from policy dividends.