Jinan Zhuocheng Bio-Tech Co., Ltd.

On May 14, 2026, China’s Ministry of Agriculture and Rural Affairs officially issued the “Implementation Plan for Comprehensive Regulation of Swine Production Capacity (2026 Revision),” lowering the national normal reserve level of breeding sows from 39 million heads to around 37.5 million heads. At the same time, the green fluctuation range for production capacity regulation was tightened from 92%–105% to 92%–103%. This marks the first downward revision of the breeding sow target in two years since February 2024.

The policy signal is clear: the pig industry requires a more rational and healthier production capacity level. The continued capacity reduction is accumulating momentum for pork prices to bottom out and for breeding profitability to return to normal, while also driving a fundamental “shift in growth drivers” for the veterinary API market, which is currently in a period of weak demand—from sustained demand suppression to gradual demand recovery. As a typical post-cycle segment of the livestock industry, veterinary APIs are expected to benefit from both demand improvement and structural reshaping after the new pig cycle begins.

I. Clear Policy Signal: Accelerating Capacity Reduction

The issuance of the plan is not incidental. As of March 2026, China’s breeding sow inventory stood at 39.04 million heads, declining for nine consecutive months and down approximately 1.4% from the end of 2025 (39.61 million heads). Although still about 4.1% above the target level of 37.5 million heads, the downtrend has been firmly established.

More importantly, the number of newly born piglets in March 2026 declined year-on-year for the first time in 17 months, confirming supply contraction at the source.

Unlike previous cycles characterized by “reactive capacity reduction,” the current policy introduces a more refined early-warning and intervention mechanism, making the de-capacity process more controllable and sustainable. Wang Zuli, an expert at the Chinese Academy of Agricultural Sciences, noted that the purpose of lowering the normal reserve level is to “align supply and demand while maintaining a safety buffer,” while the narrower fluctuation band enables “early warning for minor deviations and intervention for small divergences.”

II. Pork Price Turning Point Approaching, Profit Recovery Building Up

Policy direction is now resonating with market fundamentals. On the supply side, nine consecutive months of sow herd reduction imply a gradual decline in future commercial hog supply. Many analysts expect pork prices to re-enter an upward cycle in the second half of 2026, with the third quarter likely serving as a key inflection point.

In terms of timing, from August to October, the effects of capacity reduction are expected to gradually emerge, supported by seasonal demand from the start of the school term and holidays such as Mid-Autumn Festival and National Day. Pork prices may recover from the current range of RMB 9.5–10/kg to RMB 10.5–12.5/kg. In the fourth quarter, during peak consumption season, prices could further rise into a fluctuating range of RMB 12.5–14.5/kg.

However, the breeding sector is still under severe losses. As of April 2026, self-breeding and self-raising operations were losing about RMB 303 per head, while 19 listed hog producers recorded combined losses of approximately RMB 7.686 billion in Q1, indicating historically tight cash flow conditions across the industry.

Yet such low levels also imply that once supply contraction transmits to end prices, the magnitude of profit recovery could be significant.

III. Post-Cycle Logic Reshaping in Animal Health: From “Cost Cutting and Exit” to “Quality Improvement and Efficiency”

The recovery in breeding profitability will transmit to the veterinary API market through two main channels.

Channel 1: Recovery in total demand.
Demand for veterinary APIs is closely linked to pig inventory. As pork prices recover and profitability improves, purchasing behavior in farming operations is expected to shift from minimal survival-level medication during loss periods to proactive disease prevention and health management investment, driving a structural recovery in demand. Historical evidence shows that after the 2022 pork cycle reversal, veterinary API demand also recovered gradually.

In the current cycle, despite a reduction in total stock due to the decline from 39 million to 37.5 million breeding sows, increasing farming intensity and precision management may lead to higher per-head animal health spending.

Channel 2: Product structure upgrade.
Rising industry concentration is reshaping competitive dynamics. Leading players such as Muyuan, Wen’s, and New Hope are strengthening barriers through self-breeding models, “company + farmer” systems, and digitalized farm management.

As profitability improves, top-tier enterprises will demand higher-quality veterinary products and more effective disease prevention solutions, driving a shift from “price-based competition” to “quality-first competition.” High-end veterinary APIs are expected to gain stronger pricing power and market share.

In particular, under the normalization of African swine fever prevention, biosecurity requirements, vaccine efficacy, and precision medication practices are increasingly emphasized, leading to rising rigid demand for high-quality veterinary APIs.

IV. How Will the Veterinary API Market Evolve?

The current veterinary API market is characterized by both “divergence” and “bottoming-out.” Driven by rising upstream raw material costs and supply-side price maintenance, veterinary API prices increased by 2.55% month-on-month in March 2026, with florfenicol rebounding from the bottom to the RMB 170–180/kg range.

However, the demand side has not fundamentally improved, and the farming environment remains weak. The recent rebound is primarily driven by cost push and supply-side reluctance to sell, rather than genuine demand recovery.

According to post-cycle dynamics, once the turning point in pork prices is confirmed, the animal health sector is expected to enter the first wave of relatively strong and high-beta demand recovery. As breeding sow inventory moves toward the 37.5 million target, pork prices gradually bottom out, and farm cash flows recover, demand for veterinary APIs will gradually stabilize and rebound.

At the product level, tylosin tartrate benefited from supply-side discipline and concentrated purchasing in 2025, achieving a 27.65% annual price increase, highlighting strong divergence across products. In the recovery phase, APIs with high industry concentration or technological barriers are expected to benefit first, while oversupplied categories may remain in prolonged bottom consolidation.

V. Structural Reshaping: Supply-Side Cleansing Creating Future Room

It is also important to note that the recovery in veterinary APIs is not driven solely by demand improvement but also by accelerating supply-side consolidation. The industry is expected to continue undergoing capacity exit over the next 3–5 years, with weaker players facing ongoing pressure.

This implies that when demand recovers, the number of suppliers capable of meeting it will be significantly reduced, creating a potential supply-demand resonance that could drive the market from long-term oversupply toward structural rebalancing.

Conclusion

Overall, the “Implementation Plan for Comprehensive Regulation of Swine Production Capacity (2026 Revision)” is not merely a policy adjustment, but a key milestone guiding the pig industry into a new equilibrium cycle.

The gradual reduction of breeding sow inventory from 39 million to 37.5 million suggests that pork prices may bottom out in the second half of the year, and the transition of breeding profitability from negative to positive will shift animal health demand from a suppressed phase to a recovery phase.

Within this logic chain, veterinary APIs, as a typical post-cycle segment, are well positioned to benefit. The current low-price and low-profit environment actually provides a window for rational positioning.

Of course, uncertainties remain in the pace of capacity reduction, improvements in farming efficiency, and changes in actual purchasing behavior. Divergence among product categories will remain a long-term feature.

For the veterinary API industry, the true turning point is not a short-term price spike, but the re-establishment of the demand transmission mechanism—when farm profitability recovers, veterinary API demand will shift from temporary price-driven movements back to genuine demand-driven growth. The starting point of this cycle is precisely the 37.5 million-head production capacity blueprint.