Be Cautious When Chasing Shorts in Egg Futures, Pay Attention to Risk Control
The egg futures 1501 contract has recently been weakening and declining. We believe the current tight egg supply pattern has not been fundamentally improved. The start of Mid-Autumn Festival stockpiling by supermarkets and the reopening of schools and universities nationwide still provide some boost to egg demand. Investors' earlier expectations of a decline in eggs after the Mid-Autumn Festival may be too strong. If too many laying hens are culled, egg supply may still remain tight, and egg futures may still have room to catch up, so chasing shorts requires caution.
Rising Costs
The cost of raising laying hens mainly includes feed costs, chick costs, disease prevention and treatment costs, labor costs, and water and electricity costs. In the composition of production costs, the most important is feed cost, accounting for about 60%—70% of total cost, followed by chick cost, accounting for about 15%—20%. From the perspective of upstream raw material costs, the price of laying hen chicks has recently risen somewhat. At present, the price of laying hen chicks is 3.23 yuan/bird; feed prices have continued to rise, and the price of laying hen compound feed is 3.19 yuan/kg. Affected by rising breeding costs, laying hen farmers are not active in restocking. According to Zhonghua Data, in July, the number of chicks restocked fell 10.2% month-on-month and 47.8% year-on-year. From the perspective of breeding profits, current laying hen breeding profits are already very substantial, reaching 49.48 yuan/bird, which may to some extent increase farmers' enthusiasm for restocking. From the perspective of substitute pork prices, pig prices have recently continued to rise. At present, the average price of live pigs in 22 provinces and cities nationwide is 15.36 yuan/kg, the average pork price is 22.76 yuan/kg, and the current pig-to-grain price ratio is 5.59.
⟦NL> Low Laying Hen Inventory
Modern laying hen breeds need 4 to 5 months to finish the brooding and rearing periods, and enter the laying period after 20 weeks of age. From the 6th to 11th month of age, the laying rate can reach 90%, and by the 12th month of age the laying rate falls to 80%. The peak laying period can generally last 5 months. After the 16th month of age, when the laying rate falls below 70%, farmers begin to cull laying hens. At the peak of laying, egg supply is large and egg prices fall; at the trough of laying, egg supply is insufficient and egg prices recover. This year, affected by the earlier avian influenza, laying hen inventory is insufficient, and affected by factors such as continued increases in feed costs and laying hen chick prices, laying hen farmers were not active in restocking earlier, and egg supply is tighter than in previous years. From the perspective of laying hen inventory data, in July, the inventory of laying hens in production fell 3.11% month-on-month and 21.48% year-on-year. At present, there are about 1.13 billion laying hens in production nationwide.
Spot Prices Remain High
At present, there are still about 10 days until the Mid-Autumn Festival. Stockpiling by food processing enterprises is gradually ending, and stockpiling demand for eggs from supermarkets and restaurants is expected to increase. In addition, schools and universities nationwide reopen around the Mid-Autumn Festival, which will also increase egg demand to some extent and boost spot egg prices. Recently, boosted by Mid-Autumn Festival demand, spot egg prices have remained high, with some pullback in the past two days. At present, the average egg price across provinces nationwide is 5.37 yuan/jin, down 0.09 month-on-month. At present, the average price in major sales areas is 5.73 yuan/jin, down 0.08 month-on-month, among which Beijing is 5.44 yuan/jin; Shanghai is 5.85 yuan/jin; Guangzhou is 5.90 yuan/jin. At present, the average price in major producing areas is 5.43 yuan/jin, down 0.1 month-on-month, among which Dezhou, Shandong is 5.30 yuan/jin; Shijiazhuang, Hebei is 5.49 yuan/jin; Shangqiu, Henan is 5.40 yuan/jin; Nantong, Jiangsu is 5.70 yuan/jin; Dalian, Liaoning is 4.90 yuan/jin.
Do Not Be Overly Bearish
From the perspective of monthly average prices, the price trend of eggs over the years shows an obvious seasonal pattern. Driven by the decline in production caused by laying hens resting in summer after the start of summer and by consumption demand during the Mid-Autumn Festival and National Day holidays, September and October are generally the annual highs, January and February are the secondary highs, and affected by the decline in demand after the Spring Festival and the increase in laying hen production after the weather turns warmer, March and April are generally the annual lows. According to Zhonghua Data, in July, hens aged 0—20 weeks accounted for 24.86%, those aged 21—72 weeks accounted for 69.87%, and those aged over 73 weeks accounted for 5.27%. Compared with April, May, and June, the proportion of chicks decreased and the proportion of culled laying hens increased. At present, domestic culled hen prices are stable: Dezhou, Shandong 5.40-5.90 yuan/jin; Shangqiu, Henan 5.70-5.90 yuan/jin; Shijiazhuang, Hebei 5.30-5.50 yuan/jin; Nantong, Jiangsu 5.60-5.80 yuan/jin; Dalian, Liaoning 5.20-5.40 yuan/jin.
Overall, egg futures and spot prices have diverged. Eggs should not be viewed too bearishly. If futures prices fall sharply again, the risk-reward ratio of shorting is not worthwhile. Investors must be cautious when chasing shorts, but they still need to pay attention to the spot prices of feed such as corn and soybean meal, as well as the prices of upstream and downstream products such as laying hen chicks and culled hens. At the same time, they also need to refer to factors such as market sentiment and long and short positions. In addition, egg futures and spot prices fluctuate relatively greatly, so investors are advised to set stop-loss and take-profit levels in a timely manner and operate with light positions.