China’s slow ramp up of U.S. soybean imports this year underscores how Beijing has gradually increased its domestic production, thanks to policy support. “The course of improvement in food self-sufficiency mirrors the efforts in China’s energy and chips security,” Goldman Sachs analysts said in a Dec. 9 report about China agriculture stock plays. Beijing’s top policy documents, especially in recent years, have highlighted the need to support domestic agriculture. Soybeans are particularly important as a key ingredient in livestock feed. Thanks to sweeping improvements in arable land and management of animal feed demand, the Goldman analysts expect China can drastically reduce its need for imported soybeans. In particular, they predict China’s corn and soybean yield can jump to 80% to 85% that of the U.S. by 2035, up from around 50% currently, while reducing soybean content in animal feed by 25%. It’s a big shift, considering that China is the world’s largest soybean importer and has been the largest buyer of U.S. soybeans — until pausing those purchases for much of this year as trade tensions escalated. After both sides reached a trade truce in October, China has resumed buying U.S. soybeans, but so far at a smaller volume than initially expected . China has “stabilized its reliance on [grain] imports for the first time in two decades,” the Goldman analysts said, “and is now potentially reversing, or building the capacity to reverse, the course ahead.” The analysts also noted that China’s average annual public sector spending on agricultural research and development reached $6.6 billion from 2019 to 2021, five times more than two decades ago and more than major peers. Here are three of Goldman’s buy-rated stock plays by theme: Biotech seeds: Shenzhen-listed Dabeinong, with a price target of 7.5 yuan ($1.06). “Seeds are at the core of crop production, the ‘chips’ for food production, where its quality and traits directly affect yield performance,” the report said. The analysts expect Dabeinong’s dominance in domestic bio-tech seeds will enable the company to capture significant potential in the market for genetically modified crops. Agricultural machinery: Hong Kong-listed First Tractor, with a price target of 14 Hong Kong dollars ($1.80). Goldman initiated coverage of China’s largest agricultural tractor producer by 2024 sales revenue. “We view First Tractor as well positioned to capture the structural growth opportunities brought by China’s tractor upsizing (towards high-HP tractors) and upgrading (towards intelligent tractors) trend in light of China’s transition towards agricultural modernization to achieve food security,” the report said. Slow-release fertilizer producers, and product upgrades: Shanghai-listed Yunnan Yuntianhua, with a price target of 45 yuan. The stock analysts also initiated coverage of Yuntianhua as China’s top fertilizer producers with 10% of the domestic market and 20% of the market for fertilizer inputs. “As one of the few major domestic producers with 100% self-sufficiency in upstream resources, we expect YTH to well capture upstream profits for its fertilizer production in 2025-2030E,” the analysts said, noting the stock offers the highest dividend yield among its China agriculture coverage.
Source: cnbc.com
