Key points of investment
Investment suggestion: We believe that the international sugar fundamentals are changing. It is expected that the sugar industry will face a gap between production and demand in the 19/20 cropping season, and the price bottom has already appeared, and the future price is expected to rise; Domestic prices continue to hover around the cash cost of sugar factories, and the bottom area of domestic sugar prices has already appeared. It is suggested that the sugar cycle opportunities be laid out at the bottom, and the recommended targets are COFCO sugar industry, etc.
China is one of the earliest sugar-producing countries in the world and one of the largest sugar-producing countries. At present, China’s sugar production accounts for about 10% of the global output. At present, the distribution of sugar crops of china is "sweet in the south and sweet in the north", and the yield ratio of sugarcane sugar to beet sugar is about 15:1. In terms of sugar beet production, sugar beets are planted in all northern provinces, but mainly in Xinjiang and Inner Mongolia, which account for 85% of the national sugar beet production. From the perspective of sugarcane production, although all the southern provinces have sugarcane production, Guangxi, Yunnan and Guangdong provinces occupy the top three positions in sugarcane production, and the total sugarcane production can reach 96% of the national sugarcane production. However, due to the poor natural conditions, the geological conditions of sugarcane planting in China are poor, and it is difficult to realize mechanized production; Extreme weather conditions are frequent, and natural disasters have a serious impact; In addition, there is a lack of advantages in agricultural land rent, labor cost and fertilizer and pesticide cost, so China’s sugar industry is temporarily at a disadvantage compared with Brazil, India, Australia and other major producing countries.
In terms of production, it is estimated that the national total output in the 18/19 cropping season will be 10.6 million tons, an increase of 2.8% compared with 10.31 million tons in the previous cropping season. We estimate that the sugar production in Guangxi, a sugarcane region, is about 6 million tons, accounting for about 57%. Yunnan is expected to produce about 1.7 million tons of sugar, accounting for about 16%; Guangdong is expected to produce 810,000 tons of sugar, accounting for about 8%. The estimated sugar production in Inner Mongolia in beet area is about 650,000 tons, accounting for about 6%. Xinjiang is expected to produce 560,000 tons of sugar, accounting for 5%. From the current policy and the background of sugarcane farmers’ planting income, it is expected that the purchase price of sugarcane will not change much; Benefiting from the construction of double high bases, the long-term planting area is expected to remain stable; Sugarcane seed regeneration is slow, sugar content is decreasing year by year, and the overall yield is expected to remain stable. Due to the downward cycle of sugar, the integration of sugar factories has increased, the concentration of industries has gradually increased, and the proportion of state-owned enterprises has increased.
In terms of consumption, it benefits from the development of population growth, income increase, urbanization and product diversification of the sugar industry itself. Since 2003, the total sugar consumption in China has increased from 9.1 million tons to 15 million tons, an increase of nearly 65%. In recent years, the output of all kinds of industrial food has increased steadily, and industrial consumption accounts for 70% of the sugar consumption structure in China. At the same time, the marginal substitution effect of starch sugar, high fructose corn syrup and other substitutes has been greatly weakened because of the narrowing of the price difference and the shrinking space for substitutes.
In terms of inventory, the old sugar carried forward this season is basically short-selling. The storage of sugar in the national reserve has an impact on the short-term trend, but then the market price will still return to the long-term trend. At present, it is more likely that the national reserve will leave the warehouse to balance the sugar smuggling gap. China is a major net importer of sugar in the world. Domestic sugar production mainly meets domestic consumption demand, and the annual export volume is much lower than the import volume. In addition, with the strengthening of control, smuggling has been significantly suppressed.
Core risk
Weather changes lead to large fluctuations in sugar production, and government policies affect sugar production and trade.
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China: a big country in sugar production and sugar production.
Sugar production has a long history and has been developing continuously since the founding of the People’s Republic of China.
China is one of the earliest countries to make sugar in the world, and the earliest record of sugarcane cultivation is the Eastern Zhou Dynasty. Since sugarcane pulp was obtained from sugarcane in the Warring States Period, sugarcane cultivation has become increasingly prosperous, and sugarcane sugar-making technology has been gradually improved. After nearly a thousand years of development, a large-scale workshop-style sugar-making industry has been formed during the Tang and Song Dynasties. From the end of 18th century to the beginning of 19th century, the success of sugar beet greatly promoted the development of sugar industry, which directly led to the mechanization of sugar industry. In 1930s, there was an upsurge of mechanized sugar production in China, but the industrial system of mechanized sugar production was not formed, and the sugar industry was still in the handicraft stage.
After 1949, the sugar industry in Chinese mainland has been developing continuously, which has generally gone through three periods: the first stage was from 1949 to 1958, which was the first prosperous period in the history of sugar industry in China. The second stage was from 1959 to 1977, which was the wandering period of sugar production and construction in China. The third stage After the Third Plenary Session of the 11th CPC Central Committee in 1978, China’s sugar production and construction entered the most prosperous period in history. With the development of socialist market economy, since 1991, the sugar industry has realized the transition from planned economy to socialist market economy through the reform of sugar production, operation and management system. China has developed into one of the largest sugar producers in the world, second only to Brazil and India.
Due to poor congenital conditions, China’s sugar industry lacks competitiveness.
The natural conditions of sugarcane production in China are relatively poor, which is the most important factor restricting the competitiveness of sugarcane industry in China. First of all, from the geological conditions, China’s sugarcane planting geological conditions are poor, sugarcane areas are located in hilly red soil dry land of Guangxi and Yunnan, and it is difficult to realize mechanized production of large sugarcane fields. Nearly half of sugarcane production costs are labor costs. However, the level of mechanization in China is lower than that in Brazil and other countries, and the labor cost is higher than that in Brazil and other countries, which leads to the increase of planting cost. Secondly, from the perspective of climatic conditions, China’s sugarcane areas are located in the subtropical zone, and the climatic conditions are generally similar to those of the main sugarcane producing areas in the world, but extreme weather conditions occur frequently. Rainfall is unevenly distributed, and spring drought and autumn drought are common, sometimes affected by freezing disaster and wind disaster. Natural disasters have a serious impact on sugarcane production in China. In 2016, the production cost of sugarcane in China was 360-400 yuan/ton, compared with Brazil (134-158 yuan/ton), India (140-168 yuan/ton), Thailand (200-230 yuan/ton), the United States (214-227 yuan/ton) and Australia (214-227 yuan/ton).
In addition to the differences in natural conditions, compared with the major sugar producing countries in the world, in terms of farmland rent, the proportion of land cost produced by other major sugar cane except China is very low or even negligible; In terms of labor costs, the United States and Australia have high labor costs but high mechanization, while Brazil, India and Thailand have relatively low labor costs, so the labor cost advantage can be reflected; In other respects, the fertilizer, pesticide, cultivated land and harvesting cost of sugarcane planting in China are higher than those in other countries. Therefore, on the whole, China does not have the advantages of sugarcane cultivation.
The yield fluctuates periodically, and the distribution of sugar is "sweet in the south and sweet in the north"
The three-year ratoon characteristics of sugarcane make the domestic sugarcane planting area show the periodic characteristics of increasing production for three years and then decreasing production. In 2007/2008, the output of sugar in China reached the highest level in history, reaching 14.82 million tons, accounting for about 10% of the global output. It is estimated that the domestic sugar output will be 10.6 million tons in the 19/20 crop season.
Affected by climatic conditions, the distribution of sugar crops of china is "sweet in the south and sweet in the north". Sugarcane sugar industry is mainly distributed in Guangdong, Guangxi, Yunnan, Fujian, Hainan, Sichuan and other places. Sugar beet industry is concentrated in Heilongjiang, Inner Mongolia, Jilin, Xinjiang and other places. The yield ratio of sugarcane sugar to beet sugar is about 15:1.
According to the CASDE report, the receiving area of sugarcane and beet in the 18/19 cropping season was 1.243 million hectares and 234,000 hectares respectively, accounting for 84.16% and 15.84% respectively. The output of sugarcane sugar and beet sugar reached 9.28 million tons and 1.32 million tons, 85.55% and 12.45% respectively. The yield is dominated by sugarcane sugar.
In terms of sugarcane production, although all the southern provinces have sugarcane production, Guangxi, Yunnan and Guangdong undoubtedly occupy the top three positions in sugarcane production, and the total sugarcane production can reach 96% of the national sugarcane production.
From the perspective of sugar beet production, similar to the distribution of sugarcane production, sugar beets are planted in northern provinces, but mainly in Xinjiang and Inner Mongolia, and the sugar beet production in these two provinces accounts for 85% of the national sugar beet production.
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Production: Expected yield in the 18/19 cropping season.
10.6 million tons.
Sugarcane: The planting area is relatively stable, and the yield per unit area is decreasing year by year.
Sugarcane acquisition: In the 18/19 cropping season, Guangxi purchased according to the 490 yuan/ton guidance price.
At present, the purchasing price of sugarcane is mainly set by the government. The purchasing price of sugarcane in Guangxi is 490 yuan/ton in the 18/19 cropping season, and it is priced in the market in the 19/20 cropping season. Although the sugar factory is willing to lower the purchasing price of sugarcane, it is expected that the purchasing price of sugarcane will not change much from the current policy and the planting income of sugarcane farmers. The first reason is that once the price of sugar cane falls, it will lead to a decrease in the willingness to plant. The decline in the purchase price of sugarcane will damage the interests of growers.
Planting substitution: planting other cash crops or building expressways.
At present, there are two main alternatives to sugarcane planting: one is to plant other crops, such as corn. The corn planting in Guangxi has reached 8.62 million mu, and the second largest crop except sugarcane has become corn. In addition, there are other crops such as citrus and bananas. The other is the construction that cannot be cultivated, such as the new expressway and high-speed rail, which will make the land unable to be cultivated.
But in the long run, the income from planting sugarcane is the best. The risks of sugarcane production are mainly production risk and market risk. The production risk is actually the smallest, because sugarcane has a stronger ability to cope with natural disasters. Although sugar cane likes water, moderate drought only reduces production to a certain extent and will not lead to extinction. Some crops need the supply of other things, which will lead to crop failure after natural disasters. In the past policy environment, sugarcane planting has better revenue sustainability, simpler planting and more secure sales.
Benefiting from the construction of double-high base, the long-term planting area is expected to remain stable.
The state should ensure the basic safety and self-sufficiency rate of important agricultural products through the construction of production protection zones for important agricultural products (000061). For sugar crops, the 15 million mu sugar crop production protection zones designated by Guangxi and Yunnan are all built according to this relatively high standard of farmland. With more than 10 million tons in these two provinces and more than 1 million tons produced by other provinces, the basic self-sufficiency rate can be maintained at more than 60%.
At present, the 5 million mu double-height base in Guangxi has basically been put into use, which can guarantee 30 million tons of sugarcane planting and 3.5 million tons of sugar production. If other scattered seeds are added, the total is more than 5 million tons. Therefore, even if the purchase price of sugarcane drops sharply in the future, the planting area will not drop sharply, because Guangxi experienced a relatively large decline before, and then the purchase price of sugarcane fell to 420 yuan/ton, and the sugar output remained at 5 million tons.
In Yunnan, sugarcane planting bases are mainly built in 21 counties (cities, districts) of 7 cities (states) including Lincang, Dehong, Baoshan, Pu ‘er, Yuxi, Wenshan and Xishuangbanna. The production capacity target is that by 2020, the planting area of sugar cane in Yunnan Province will be stable at 5 million mu; The output is stable at more than 24 million tons. Among them, 21 counties (cities, districts) have an area of 4 million mu and an output of 20 million tons. The output of 2 million mu core base is 12 million tons.
Yield per unit area: Sugarcane species update slowly, and sugar content decreases year by year.
The sugar factory is unable to provide new seeds at a loss. Usually, new seeds are provided by sugar factories, and sugarcane farmers cannot afford to buy new seeds. In the past two years, after a large number of losses in sugar factories, the support for sugarcane farmers has decreased, and there is no money to help sugarcane farmers buy seeds. Sugarcane farmers leave the original sugarcane for planting, cut off the top 50 cm, tie it up, put it in water, and put it in the ground in April next year to continue planting, thus saving the cost of buying seeds. This phenomenon is more common.
Due to the lack of sufficient financial support in sugar factories, sugarcane varieties are slowly updated, so the sugar content of sugarcane is decreasing year by year due to variety problems. The sugar content of sugarcane in the 2018/19 cropping season is low, and it needs 9 tons of sugarcane to make one ton of sugar. The highest sugar content is 12.3%, and most sugar contents are between 11.5% and 11.8%. The reason for the low sugar yield in recent two years is variety degradation. Although Shuanggao Base has improved many new varieties, such as Guitang 46, Guitang 42 and Yuetang 60, the old variety Taitang 22 and the new variety 136 are still the dominant varieties in Guangxi. The new variety 136 is tall, but it has low sugar content and is not wind-resistant. When the wind blows down, it will cost more to pick it up and cut it, and it is not drought-tolerant.
Therefore, the improvement of sugarcane varieties in Guangxi is more complicated, which is also the reason why the sugar yield does not rise and fall. This phenomenon has appeared for 2-3 years. There will be new varieties in the 19/20 cropping season, but the promotion strength remains to be questioned. The peak of planting is around Qingming in April and May, and the old seeds are still the main ones.
Sugar Factory: The integration has intensified, and the number of days to start work has been reduced.
Sugar refinery integration: downward cycle consolidation is intensified.
Due to the great difference in the capital situation between sugar factories, in the downward cycle of sugar prices, the general trend of the industry is concentration, the proportion of state-owned enterprises is rising sharply, and small enterprises are gradually disappearing.
Take Guangxi as an example: there were more than 100 sugar factories in Guangxi before, and the production capacity was seriously overcapacity. After several years of merger and reorganization, 80 were left, and the number will be reduced to 60 according to the wishes of the government next year, and the production capacity will gradually become saturated. In the last two crop seasons, there have been more and more cases of strong alliances between groups and large groups hosting small groups. The sugar factory carries out capacity integration through shutdown, merger and reorganization. At present, from Guangxi, the largest output is East Asia, the second largest is Guangzhou Sugar, and the third largest is Nanning Sugar (000911), which acquired British sugar. These are all state-owned companies. The fourth is South China, and the fifth is back to the state.
Start-up of sugar factory: reduce the cost by about 110 days.
At present, sugar mills usually open in December. Sugar mills mainly depend on the weather, and the start of squeezing is basically postponed to the season of high sugar and high squeezing, with the best temperature difference. Usually sugar factories close in March. In the case of no rain, the production line of the factory building in the cropping season is basically at full capacity.
A sugar factory in the harvest season can basically start for more than 100 to 110 days. Because the best effect is that the high sugar content of raw materials cannot be achieved within 120 days, which will increase the production cost. The best time for sugarcane harvesting is within 120 days. After 120 days, there will be invisible cost increase and low sugar content. This is the problem of sugarcane season. After April, when sugarcane germinates and grows, the sugar in sugarcane will be converted into glucose for bud growth, and the sugar in sugarcane will decrease, and the cost of pressing will increase.
Output forecast: It is estimated that the total national output in the 18/19 cropping season will be 10.6 million.
Affected by the recovery of planting area and the relatively stable yield per unit area, according to CASDW, the national total output in 18/19 cropping season is estimated to be 10.6 million tons, which is 2.8% higher than that in 17/18 cropping season. We estimate that the sugar production in Guangxi, a sugarcane region, is about 6 million tons, accounting for about 57%. Yunnan is expected to produce about 1.7 million tons of sugar, accounting for about 16%; Guangdong is expected to produce 810,000 tons of sugar, accounting for about 8%. The estimated sugar production in Inner Mongolia in beet area is about 650,000 tons, accounting for about 6%. Xinjiang is expected to produce 560,000 tons of sugar, accounting for 5%. In the 19/20 cropping season, the planting area is expected to be relatively stable, and the sugar output will also be stable around 10.6 million tons.
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Consumption: a country with a large population, with a huge increase in consumption.
Consumption is on the rise.
China is a big sugar country. Since 2003, the total sugar consumption in China has increased from 9.1 million tons to 15 million tons, an increase of nearly 65%. On the one hand, it stems from the population growth in China, on the other hand, it also stems from the economic growth and the development of sugar industry. However, due to the growing concern for health, the growth rate of sugar consumption has slowed down in recent years. In the 2017/18 crop season, the total sugar consumption in China was 15 million tons, which was the same as that in the previous crop season.
Economic growth and urbanization promote sugar consumption
As a huge market with a population of 1.4 billion, China’s sugar consumption has reached the level of 15 million tons. Although the per capita consumption is small, the population base is large, and the per capita consumption, especially in rural areas, is increasing, so the total sugar consumption in China is increasing. On the one hand, although the growth rate of China’s economic aggregate has slowed down, it still maintains a growth rate of about 6.5%, and economic growth will promote the consumption of sugar; On the other hand, the improvement of urbanization level in China will also increase the growth of sugar consumption. There is a small amount of sugar in rural areas, and the sales of sugar can only be improved if they enter cities and towns and come into contact with industrial food. This trend should be obvious at present. Therefore, urbanization is a very important factor to promote sugar consumption. The improvement of living standards must be accompanied by changes in living habits.
Industrial consumption has steadily increased, and consumption shows seasonal laws.
Industrial consumption accounts for 70% of the sugar consumption structure in China, and direct consumption accounts for 30%. Industrial consumption mainly refers to the consumption of sugar for food processing, which is mainly divided into nine categories: carbonated drinks, cold drinks, quick-frozen foods, canned foods, sweets, biscuits, cakes, fruit juice drinks and dairy products. Among them, the proportion of sugar per unit weight of sweets is the highest, reaching 45%, followed by cakes, biscuits, cold drinks, quick-frozen foods and carbonated drinks, with the proportion of sugar per unit weight above 10%. Among them, carbonated drinks are due to their large output. The proportion of sugar per unit weight of fruit juice drinks is 8.5%, which is another "big sugar user"; The proportion of sugar per unit weight of canned food and dairy products is 5% and 3% respectively.
Among the nine categories of sugary foods, data from the National Bureau of Statistics show that the output of beverages, dairy products and canned foods has increased significantly in recent years. Among them, beverages have become the bulk of sugar consumption in the last two years.
In addition, the consumption of sugar such as fruit juice drinks and candy will show different seasonal characteristics, which leads to the seasonal characteristics of sugar demand. The seasonal characteristics of carbonated drinks consumption are obvious, and the annual output in June, July, August and September is obviously higher than that in other months. The peak of candy monthly output generally appears in winter every year, and the gap between high-yield and low-yield months is not significant. The monthly output of dairy products is relatively stable, and the peak usually appears in June, September or October. The seasonal characteristics of canned food consumption are relatively obvious, and the output in August and September each year can reach 150% of that in general months. The seasonal characteristics of frozen beverage output are the most regular, reaching the peak in summer every year, and then slowly decreasing until reaching the low point in winter, and the monthly output in summer is even twice that in winter.
The marginal substitution effect of substitutes is weakening.
Substitutes are the main products that affect the demand for sugar, but the substitution effect is gradually weakening at present, and starch sugar is the main substitute for sucrose. Starch sugar mainly includes fructose syrup, malt syrup, crystalline glucose, maltodextrin and other small varieties, among which fructose syrup is the peak sugar that mainly competes with white sugar. At present, 50% of sugary soft drinks contain starch sugar, 77% of sports functional drinks contain starch sugar, and 55% of juice drinks and flavored milk contain starch sugar, which basically realizes the complete substitution of fructose syrup for white sugar in carbonated drinks [2].
The low cost of high fructose corn syrup and the high price difference with white sugar are the important reasons for the remarkable substitution effect, and the narrowing of the price difference in recent years has also led to the weakening of substitution. After 2014, the price of white sugar has been rising all the way, while the price of high fructose corn syrup has decreased with the decrease of corn cost. The price difference between white sugar and high fructose corn syrup has climbed from 1000 yuan/ton to 4,500 yuan/ton, which greatly stimulated the substitution consumption of high fructose corn syrup for white sugar. At the same time, the production lines of high fructose corn syrup, malt syrup and glucose syrup can be easily transformed into each other. However, because the price difference has been greatly reduced, the corresponding substitution effect has also been greatly weakened.
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Under the internal and external game, the inventory gradually declined.
Inventory declined, and the old sugar was basically sold short.
Due to the shortage of production and the fact that the sugar production is at the end of the increase cycle, the sugar inventory in China shows a downward trend. From November 1st of each year to October 31st of the following year, Guangxi is a whole crop season, and the old sugar carried forward from this crop season to the previous crop season is basically sold short. Guangxi’s inventory this year is basically empty, showing the phenomenon of selling sugar, and the main thing in the cropping season is to sell new sugar. There is little carry-over in the last two cropping seasons, especially in the 18/19 cropping season, and there is almost no carry-over.
At present, the sugar sales in the 18/19 crop season are just less than half. The practice of sugar factories is that there will be no cross-year inventory. On the one hand, it is the inventory problem. Carry-over sugar needs to be stored in the warehouse, which has a high storage cost, and once it is damaged, it is difficult to sell and the loss is great; On the other hand, although there is no mandatory shelf life for sugar, it is expected that the stored sugar will still meet the 1B standard in terms of physical and chemical indicators, but it is of low quality and difficult to sell in terms of sensory indicators.
National reserve: balancing the gap of smuggled sugar, the national reserve has a higher probability of leaving the warehouse.
The purpose of the national sugar reserve system is to ensure the healthy and stable development of China’s sugar industry, thus effectively protecting the interests of sugarcane farmers and sugar-making enterprises. The purpose of national sugar reserve is to weaken the influence of sugarcane production on the periodic fluctuation of sugar market through timely throughput, and to exert the efficiency of high leverage, and finally to achieve two policy objectives: to ensure the effective supply of sugar at a reasonable price and to protect the interests of sugar enterprises and sugarcane farmers in China. The overall national sugar storage is a macro-control of the sugar market by establishing a throughput regulation mechanism, establishing a new storage mechanism and formulating relevant policies.
Since the establishment of the national sugar reserve system, China’s national sugar reserve has remained above 1 million tons in most years. The national sugar storage inventory mainly comes from the finished sugar carried over from the previous year and imported raw sugar. In order to stabilize the supply, China and Cuba signed a long-term import agreement, importing 400,000 tons of raw sugar every year and directly entering the national reserve inventory. Recently, Pakistan has been allowed to export 300,000 tons of sugar to China, and Pakistan has exported 150,000 tons of sugar to China according to China’s tax-free preferential scheme.
However, at present, among the existing agricultural products, only the supply side of sugar has not been destocked, and we estimate that the national storage of sugar is about 7 million tons, so the pressure of sugar destocking is greater from the perspective of the competent authorities. The storage cost of sugar is relatively high. We estimate that the national storage cost of white sugar is more than 6,000 yuan/ton. Although the storage cost of raw sugar is low, after adding financial expenses, the national storage cost of sugar is expected to be close to 6,000 yuan/ton. Therefore, if it does not reach a price range, the loss will be great. Raw sugar is easier to keep, so it is more inclined to throw white sugar. In order to balance the gap caused by the reduction of smuggled sugar, the probability of national storage is high. However, considering the static inventory, the national sugar reserve can only export 2-3 million tons. In terms of dumping, it can be seen from the price chart that the long-term trend of sugar prices has not changed, and the short-term trend has changed, but then the market price still returns to the long-term trend.
There is a gap between production and demand in China, and China is a net importer of sugar.
China is a major net importer of sugar in the world. For a long time, domestic production of white sugar is generally low-quality white sugar, while international trade is mainly raw sugar and high-quality white sugar; On the other hand, due to the high cost, China’s sugar price is relatively high compared with the international price. Therefore, China’s sugar has no export advantage, and domestic sugar production mainly meets domestic consumption demand. The main import sources of sugar in China are Brazil, Thailand and Cuba, which account for about 90% of China’s total sugar imports.
Smuggling arbitrage space is large, and cracking down on smuggling has obvious effects.
Because of the huge profits of international sugar smuggling, smuggling is basically difficult to ban. Since 2014, smuggled sugar from Thailand, Pakistan, India and other countries has been sold in China market through counterfeit packaging. Referring to the international price of white sugar, the price of smuggled sugar is generally lower than the market price of white sugar in China by about 2000 yuan/ton.
At present, although it is impossible to eliminate the smuggling of white sugar in the country, it is true that with the tightening of control, the smuggling phenomenon has been significantly suppressed. The public security organs carried out business counterfeiting on the crime of counterfeiting registered trademarks, and began to clean up local umbrellas in September 2018. At present, the phenomenon of sugar smuggling in Yunnan has basically been eliminated.
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The bottom of sugar price is now available, and the probability of future increase is high.
Sugar prices have gradually entered a new rising cycle and are expected to continue to rise in the future.
At present, sugar has gradually entered a new rising cycle, and the price is relatively low. At the beginning of this year’s cropping season, the price of sugar started from 5300 yuan/ton, and the actual selling price of sugar (ex-factory price) was between 4950 yuan/ton and 4920 yuan/ton. Sugar factories in Guangxi will suffer losses when they sell for less than 5,000 yuan/ton, ranging from 600-100 yuan/ton.
Recently, the price of sugar is rising, which has reflected the expectation of the relationship between supply and demand, but it has never come up during the cropping season. One special reason is the financial pressure of enterprises. Because the supply and demand are balanced throughout the year, but the concentrated harvest season must be oversupply. If the financial pressure is greater, it will be eager to sell sugar, and the price of sugar will lack the motivation to rise. Therefore, it is necessary to solve the problem of fund guarantee such as balanced sales of urgent production and annual sales.
However, the price of sugar will continue to rise in the future, the period of the greatest financial pressure on enterprises has passed, and the market is also entering the peak season, and smuggling has achieved results.
Recommended target: COFCO sugar industry
COFCO is the largest grain, oil and food import and export company and powerful food producer in China. It is involved in agricultural products trade, biomass energy development, food production and processing, real estate, property management, hotel management and finance, which are closely related to public life. The business scope of COFCO sugar industry includes domestic and foreign sugar refining, sugar import, port sugar refining, domestic sugar sales and trade, sugar storage and logistics, and tomato processing, which is a solid foundation for ensuring domestic sugar supply. COFCO Sugar has a perfect industrial layout at home and abroad, and has a whole-industry operation mode of making sugar from home and abroad, importing and refining sugar from ports, domestic sales and trade, warehousing and logistics, and managing central reserve sugar.
We expect that the EPS of the company will be 0.45 yuan and 0.76 yuan in 2019-2020, maintaining the "overweight" rating.
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Risk warning
Extreme weather led to a sharp drop in sugar production.
The occurrence of extreme weather has a great influence on the market output of sugar in China, and natural disasters may cause huge losses in sugar production.
The influence of agricultural policy affects sugar production and export.
China’s agricultural policies (such as minimum purchase price and subsidies) may affect Brazil’s sugar production and export.
This article first appeared on WeChat WeChat official account: Poker Investor. The content of the article belongs to the author’s personal opinion and does not represent Hexun.com’s position. Investors should operate accordingly, at their own risk.
(Editor: Ji Liya HN003)
