Seed tech is the new chip; China CPI; Covid whistle blowing

China agriculture tech equities soar on bullish 5-yr plan

Equity prices for agricultural science and technology companies in China surged on Thursday after the government highlighted food security remains a key element of the country’s national security in the country’s fourteenth five-year plan.

Shares of WanXiang Doneed co., ltd, an agricultural science company headquartered in Heilongjiang province surged more than 10% intraday to its three-week high at 12.19 yuan per share.

More than half a dozen companies within the same sector listed on both Shanghai and Shenzhen stock exchanges that specialize in seed development jumped 5-10% during the day.

The country’s fourteenth five-year plan urged further technological development to improved grains output with limited fertile land, and domestically developed seeds are at the core of agricultural planning until 2025.

China’s government described seed as the “chip of agriculture”.

Earnings announcements show strong demand for poultry

Publicly traded poultry producer Xiantan reported November data which included revenue of 289m yuan and product sales of 333,000 tons. Revenue rose 18.6% y/y while sales volume increased by 20.0% y/y.

This follows a trend of strong sales reports for poultry producers with Hunan Xingjia announcing sales up 18% y/y yesterday. As mentioned in our Monday’s note, consumer tastes are changing with younger consumers eating more chicken which they perceive as a healthier alternative to pork.

Food inflation spurs China CPI to annual high

Consumer inflation indicator in China rose in November, hitting 2.3%, the highest level in over a year.

Vegetable prices were up more than 30% which added +0.6% to the CPI. Eggs surged 17.6%, contributing +0.1% to the index, aquatic products rose 8.5%, adding +0.15%, and pork jumped 12.2%, adding +0.15%.

The current inflation in food prices consists of both transitory and more long-term inflations.

Vegetables prices rose sharply in recent months following adverse weather condition in northern China which damaged crop quality and slowed planting and harvests.

However, as high price is luring Chinese farmers to ramp up their productions, vegetable prices in the country have also begun to ease in December. Hence, volatile price swings could persist in China until the Lunar New Year holiday.

Hog prices have risen sharply in the past two months, but the market is almost universally bearish on hog and pork prices going into 2022. [See our recent piece Why is China hog futures slumping during a “peak demand” season?]

Other price increases are likely to be more persistent. As we noted in the December 8th commentary, there have been ten publicly listed companies raising prices in recent months due to higher food input costs, higher energy costs, and higher labor costs. These price changes might take a few months to be reflected in the CPI, but they will also be stickier and less likely to drop.

Northern China hikes covid whistle blowing in cold chain imports

Panjin, a city in Liaoning province in northern China, has offered rewards of up to 50,000 yuan (US$7.875) for people who report cold chain companies that violate the strict safety requirements.

The scheme originally aimed to encourage people to get tested and avoid the need for massive city-wide testing has now shifted over to cold chain whistle blowing.

China’s northern industrial hub Harbin in Heilongjiang province recently announced it would give cash rewards of 10,000 yuan (US$1,575) for anyone who proactively took a covid test, and then tested positive.

A smaller city in the northeast, Fuxin in Liaoning province, followed suit but raised their incentive to 20,000 yuan (US$3,145) per person.

It is mandatory for goods imported into China to have the “three certificates and one code”. The certificates being the “inbound cargo inspection and quarantine certificate, the coronavirus nucleic acid test qualification certificate, and the disinfection certificate”, and the code being a QR code for traceability.

Liaoning province has seen a recent uptick of coronavirus cases imported via cold chain products, with the city of Dalian just finishing its 3rd cold chain-linked covid outbreak.

It was previously noted in our commentary on December 3 that the recent outbreak and how companies and local regulators were facing punishments for lax enforcement.

On a non-market note, Panjin is famous as a scenic spot within China even though little known on an international stage. The coastal areas of the city have a special type of seaweed which turns deep red in the autumn drawing tourists to the otherwise quiet city of 1.4 million people.

USDA confirms more soy sales to China, but likely exporter short covering

US Department of Agriculture on Wednesday reported 130,000 tons more of 2021/22 US soybeans that have been sold to China, following the same amount reported this past Monday.

In addition, a sale of 123,000 tons to unknown destinations was also disclosed on Tuesday, but many market sources expected this sale was also bound for China.

This could suggest that China has booked 383,000 mt of US soybeans this week as the USDA tend to report new sales within 24 hours after the transactions.

However, Chinese purchases were said to be largely stagnant this week due to weak crush margins for December 2021 and January 2022 shipments, according to Sitonia Consulting survey with traders.

Many buyers were on the side-lines also because the USDA is due to publish the influential monthly Wasde report on Thursday.

Several traders hinted that these reported sales this week could be transactions completed days or weeks ago, but only have the bill of lading finalized. Thus, the USDA reported them as new sales.

Some soybean cargo purchases this week were reported to be done for Q1 2022 shipments from Brazil, but demand for US soybeans was mostly absent.

Nonetheless, Chinese buyers snapped up about ten cargoes of US soybeans last week for December and January laycan. Four of which were booked out of the US Pacific Northwest.

“Could also be short covering or building new long [positions] by exporters,” said one trader at a major trading house.