Sluggish for 5 Years! This Trillion-Dollar Industry Is Undergoing Major Changes

Renowned financial institution UBS released a research report on March 5th, stating that the current pig industry is in the late stage of a downtrend, with pig prices falling below cash costs for about 1.5 years. Starting from the fourth quarter of 2025, the entire industry will continue to incur losses.

However, during this most difficult period, a change is taking place in the industry that will influence its structure over the next decade. Companies are beginning to slow their expansion and focus more on shareholder dividends.

This industry is shifting from a “cyclical” model to a “dividend” model.

The Chinese pig farming industry is transforming from a highly fragmented traditional sector into a modern agricultural industry dominated by a few giants. Scale effects inevitably give these leading companies a competitive advantage below industry costs.

After the 2026 Spring Festival, due to loose supply and weak demand recovery, pig prices across the country experienced a significant decline. Data from multiple industry organizations show that the nationwide price for external three-way crossbred pigs is approximately 10.3–10.5 yuan per kilogram. Among regions, the Northeast has the lowest average at about 10 yuan/kg, while the East and South China regions have higher averages, around 10.5–11 yuan/kg.

But what are the costs in the pig industry?

Leading large-scale breeding enterprises have reduced their cash costs to about 10 yuan/kg, with total costs around 11.3 yuan/kg.

The industry average cash cost is approximately 11–11.5 yuan/kg. Recently, conflicts in the Middle East have driven up corn and soybean meal prices, increasing breeding costs by another 0.2–0.5 yuan/kg.

Small and medium-sized farmers generally face costs of 12–14 yuan/kg.

What do these figures indicate? When pig prices are around 10.5 yuan, most companies in the industry, except for the top players, are losing money—especially small and medium-sized farmers, who are suffering significant losses.

This situation is familiar to many veteran pig farmers because China has a well-known cycle: the pig cycle.

The reason for the sharp fluctuations in pork prices is simple. The production cycle is too long and uncontrollable—about 10 months from a sow’s pregnancy to the slaughter of the pig.

This causes many industry decisions to be delayed by roughly 10 months. When pig prices rise, farmers start expanding. But by the time pigs are ready for market, supply often exceeds demand, causing prices to plummet. Farmers then begin culling sows and reducing breeding. As supply decreases, prices rise again, repeating the cycle.

China’s pig cycle typically lasts 3 to 4 years.

Since May 2021, the Chinese pig industry has been in a downturn for a full five years, as shown in the chart.

Clearly, we are at the bottom of this cycle.

Notably, this cycle’s bottom differs from previous ones, with new changes. Policies are actively regulating, focusing more on core indicators: the number of breeding sows.

Why are sows so important?

Because the number of sows almost determines pork supply in the coming year.

According to Steel Union data, by the end of 2025, the national pig stock will be 429.67 million head. Of these, breeding sows will number 39.61 million, a decrease of 1.16 million or 2.9% year-on-year.

Currently, this is 101.6% of the normal holding volume. Although still slightly above normal, it has begun entering a capacity reduction phase.

Another notable data point is that large-scale farms have reduced their monthly inventory by 0.18%, while small and medium farms have decreased by 1.18% month-on-month.

The decline is greater among small and medium farms, indicating that small farmers are accelerating their exit.

Additionally, positive changes are occurring in planned slaughter volumes. Based on data from 173 large-scale farms, January’s planned slaughter volume decreased by 1.24% month-on-month, with a slowdown compared to December’s growth rate.

The entire industry is beginning to plan for reduced pig slaughter in January.

All these signs suggest that after the government’s anti-inflation measures, pig supply is starting to be regulated, and the industry is approaching a pre-dawn moment.

The pig farming industry is no longer just a small-scale operation with a few pigs and bags of feed. It has long since industrialized, including automated feeding systems, smart environmental controls, disease monitoring systems, and big data management.

Pioneer CEO Qin Yinglin has openly stated his firm commitment to advancing intelligent pig farming, building large pig models, empowering the industry, and transforming pig farming into a modern large-scale industry.

The direct result is that leading companies now have more precise cost control, shifting the focus of breeding costs downward; meanwhile, small and medium farmers are being left behind in the move toward intelligent and refined farming.

For example, a leading company’s average cost for commercial pigs in 2025 is about 12 yuan/kg. But importantly, one-third of its production lines have costs below 11 yuan. In contrast, costs for small farmers generally range from 12 to 14 yuan.

The gap is now quite clear.

Historically, China’s pig industry was highly fragmented. In 2015, the top five pig companies accounted for only 3% of total slaughter volume. By 2025, this proportion has risen to about 20%.

In just ten years, industry concentration has increased approximately sevenfold.

Why has this change occurred?

The reason is simple: large-scale companies can withstand cycles, while small farmers rely entirely on luck.

When pig prices fall, small farmers suffer heavy losses and are forced to exit. Large companies, with lower costs and stable cash flow, can continue expanding.

Thus, industry concentration continues to rise.

Higher industry concentration means small farmers exit, reducing disorderly competition, and creating a competitive moat: scale effects. As Qin Yinglin summarized, even when pig prices are very low, (top companies) still have positive cash flow.

In other words, no matter how low pig prices go, leading companies are unlikely to lose money.

Because it’s difficult for top companies to lose money, the exit of capacity will slow and soften, making sharp price fluctuations unlikely unless a black swan event like African swine fever occurs.

In short, the industry is shedding its “cyclical” nature and shifting toward “dividends.”

For example, UBS’s research report suggests that the anti-inflation measures, the completion of expansion cycles, and normalization of capital expenditure will transform the pig industry from a capital-intensive cyclical sector into a higher-dividend industry with better shareholder returns.

This means that industry concentration is high enough that companies no longer need to spend wildly on expansion; instead, they can return capital to shareholders.

Considering that the number of breeding sows has already begun to decline in Q3 2025, industry capacity reduction is accelerating. Based on pig production cycles, prices may bottom out in the second half of 2026. By 2027, pig prices could enter a moderate upward cycle.

This will further boost ROE and valuation recovery across the industry.

For example:

Suppose pig prices rise from an estimated average of 13.0 yuan/kg in 2026 to 14.5 yuan/kg in 2027. Under this scenario, a leading company’s dividend payout ratio could increase from 47.5% in the first half of 2025 to 50%/60% in 2027, with dividend yields reaching approximately 6.4%/7.7%.

This is already very close to traditional dividend assets.

In fact, many industries will go through similar processes.

Initially, many companies, fierce competition, and volatile prices, but ultimately, they all tend toward the same end: industry consolidation. Steel, cement, home appliances—all follow this pattern.

The pig industry is no exception.

Looking ahead, China’s pig industry is likely to experience three main trends: continued exit of small farmers, increasing industry concentration, and stable dividends from leading companies.

In other words,

This industry is shifting from a highly volatile cyclical sector to a stable cash flow industry.

★ Disclaimer: The above reflects only the author’s personal views and is for reference, learning, and communication purposes only.

Source: Mikuang Investment (ID: mikuangtouzi)