Shennong Group, a key player in China’s pig farming industry, has reduced its costs to CNY 13.7/kg and aims for further reductions by focusing on genetic improvements, better raw material procurement, scaling up operations, and improving herd health. The company projects maintaining its average annual costs below CNY 14/kg while expanding its breeding sow inventory for sustained growth.
Shennong Group has achieved a significant milestone by maintaining pig farming costs at CNY 13.7/kg for two consecutive months, June and July 2024. The company is actively working on further cost reductions through strategic measures, such as optimizing production capacity and enhancing pig herd health.
In the first half of 2024, Shennong Group reduced its overall costs from CNY 14.5/kg in Q1 to CNY 13.9/kg in Q2, averaging CNY 14.2/kg for the period. Concurrently, the average selling price of commercial pigs increased by 5.60%, reaching CNY 14.70/kg, compared to CNY 13.92/kg during the same period last year. The company also reported a substantial year-on-year increase in hog sales, with a 62.83% growth, totaling 1.09 million hogs sold. This figure includes 920,100 hogs for external sales and 172,300 hogs for internal processing.
The rise in pig prices has allowed Shennong Group to achieve a net profit of CNY 124 million (approximately USD 17.55 million) in the first half of 2024. Additionally, the company’s revenue increased by 46.04% year-on-year, reaching CNY 2.49 billion (approximately USD 352.14 million).
During an earnings call on August 28, Jiang Hong, Secretary of the Board of Directors at Shennong Group, stated that the company expects to further reduce costs by an additional CNY 100-150 per head. This reduction will focus on four key areas:
1. Genetic Improvement: Shennong Group aims to enhance the genetic potential of its breeding pigs, despite already achieving a PSY (pigs weaned per sow per year) level above 28 and a weaning cost per piglet near CNY 300 (about USD 42.43).
2. Raw Material Procurement: The establishment of a futures team has significantly improved the company’s raw material procurement capabilities, presenting further opportunities for cost reductions.
3. Increased Scale: As Shennong Group continues to expand, better capacity utilization across its feed mills and farms is expected to reduce unit operating costs and amortization expenses.
4. Improved Herd Health: Currently, 70% of Shennong Group’s sows are housed in PRRS antigen and antibody negative farm breeding farms, a figure expected to exceed 80% with the commissioning of new farms. Improved herd health is anticipated to boost survival rates and reduce veterinary costs.
Jiang also indicated that with additional management efficiency improvements, the company anticipates even lower costs in the year’s second half. The company aims to maintain its average annual costs below CNY 14/kg.
The report further noted that Shennong Group’s breeding sow inventory increased from 98,000 at the end of June to 104,000 by the end of July. With a production capacity of 122,000 sows and an additional 8,000-sow farm under construction, the company could see its sow inventory reach 130,000 by year-end.
Looking ahead, Shennong Group plans to add 30,000 to 40,000 sows annually while maintaining a debt-to-asset ratio below 40%, ensuring stable and sustainable growth.
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