Chinese Farming Giant New Hope Liuhe has significantly improved its Q2 profitability and expects to restore its breeding sow stock to 800,000 by year-end. Vice President Chen Xingyao attributed the profit boost to rising hog prices and reduced farming costs. The company’s debt-to-asset ratio is expected to decrease, with strategic investments planned to aid this reduction. Executive Chairman Zhang Minggui emphasized the company’s focus on resuming and expanding existing capacities rather than building new ones. Key areas for improvement include ASF prevention and breeding systems.
During the online performance briefing for the 2023 annual report and the first quarter of 2024 held on June 25, New Hope Liuhe’s management revealed that the company’s Q2 profitability has significantly improved. Currently, the company has approximately 730,000 breeding sows in stock, and it is expected to restore this number to around 800,000 by the end of the year.
Chen Xingyao, Vice President and Chief Financial Officer of New Hope, stated that with the recent rebound in hog prices, the company’s profitability has seen a marked improvement. In May alone, the company achieved a profit of approximately CNY 250-300 million (about USD 34.78 million). Due to a decrease in pig farming costs and favorable hog prices in mid-June, the company expects June’s profitability to surpass that of May.
Chen also pointed out that with the significant improvement in profitability, the company’s debt-to-asset ratio by the end of Q2 is expected to return to levels close to the end of last year. The company aims to reduce the debt-to-asset ratio to below 70% by the end of this year and further down to under 65% next year.
According to New Hope’s 2023 annual report and Q1 2024 report, the company’s debt-to-asset ratio was approximately 72% at the end of last year and rose to around 74% by the end of Q1 this year.
Lan Jia, Board Secretary and Chief Strategic Investment Officer, disclosed that New Hope plans to introduce strategic investors to certain segments of its business to reduce the debt-to-asset ratio. This includes bringing in national funds for the company’s pig breeding business.
Zhang Minggui, Executive Chairman and President of New Hope, mentioned that the company currently has ample capacity and does not need to increase sow stalls. Over the next five years, the goal is to achieve an annual output of around 20 million hogs, corresponding to a stock capacity of about 12 million. “After repairing the balance sheet, the priority will be to resume and expand the existing capacity rather than building new capacity,” he said.
It is understood that New Hope Liuhe has a calculated sow capacity of approximately 1.6 million, with over 500,000 of this being completely idle and pending disposal.
Zhang told AgriPost that the company’s farming proportion in the Shandong region has decreased in recent years. However, given the significant existing assets, the company will consider appropriate resumption in this area as its farming capabilities improve.
Zhang also mentioned that the company’s efficiency in the finishing phase is now close to that of its competitors. The most critical areas for improvement are ASF (African Swine Fever) prevention and breeding systems.
Over the past year, the company has established a backcross breeding system, complementing the conventional pyramid hybrid system (Hypor + PIC breeds), forming a dual breeding system.
Explaining the reason for establishing a backcross system despite ample pig breeding capacity, Zhang told AgriPost that ASF remains a persistent challenge. Unlike the hybrid system, the backcross system does not impose strict breed and ratio requirements for each stage of boars and sows, thus offering greater flexibility and lower costs.
Zhang admitted that the main challenge in New Hope’s breeding system is the overly diverse and mixed sources of breeding stock introduced during the rapid expansion phase, leading to insufficient stock quality. The company aims to improve stock quality through its breeding system in the coming years. “The long-term goal is to enhance the capability of selective breeding with independent intellectual property, thereby improving downstream farming indicators.”
“If the ASF situation remains unchanged, the company plans to maintain the backcross system at around 20%,” Zhang added.
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