Guosheng Securities: The seed industry is transforming towards genetically modified, high-density, high-yield direction

According to the Zhitong Finance APP, Guosheng Securities has released a research report stating that China has established a new national food security view of "basic self-sufficiency in grains and absolute safety in staple food." In the past decade, China has also made significant achievements in breeding new high-yield corn varieties that are resistant to density, with some leading seed companies performing excellently in recent years. Against the backdrop of increasing external uncertainties, the theme of self-control in the sector has become prominent. Additionally, the revitalization policy for the seed industry and changes in genetically modified organisms (GMOs) have led to industry expansion and a significant optimization of the landscape, focusing on leading companies that have advantages in the direction of GMOs and high-yield varieties resistant to density. The main viewpoints of Guosheng Securities are as follows: Food security remains the foundation of the nation China still places a high emphasis on food security issues, with the Central Committee incorporating food security into the overall national security framework, establishing a new national food security view of "basic self-sufficiency in grains and absolute safety in staple food." There are still some weak links in China's food security foundation. On one hand, under the circumstances of a large population and limited land, tightening resource and environmental carrying capacity, and the continuous upgrading of residents' consumption structure, China will maintain a tight balance between total grain production and demand in the long term, and there are prominent structural contradictions in food, with gaps in production and demand for corn, soybeans, etc. In recent years, China's total grain imports have been increasing year by year. On the other hand, there is a shortage of good varieties, and the yield gap for crops is significant. In 1995, China's corn and soybean yields were about 70% of those in the United States, while in 2023, China's corn yield was only 58.72% of that in the United States, and in 2022, China's soybean yield was 59.41% of that in the United States. Efficiency indicators have regressed, and the benefits of chemical inputs such as pesticides and fertilizers are gradually diminishing. To ensure food security, we need to rely on technology and the seed industry must step up. The state has proposed to implement a grain yield improvement project Trend 1: GMO breeding brings industry transformation. Currently, 161 GMO corn varieties and 19 GMO soybean varieties have been approved. According to the Fuzhou Seed Dual Exchange Conference from October 29-31, 2024, GMO corn can be grown without spraying insecticides and only requires one application of glyphosate herbicide, achieving pest control effects of over 90% and weed control effects of over 95%, with yield increases of 5.6%-11.6%. The firm is optimistic about the industry expansion brought by GMOs, the reduction of variety supply, and the improvement of the landscape. Leading seed companies have the financial and research capabilities to prioritize the introduction of GMO varieties to the market, and are expected to rapidly increase their market share in the first two years of promotion. High-density, high-yield corn varieties are ushering in development opportunities In 2023, the Ministry of Agriculture and Rural Affairs launched a large-scale yield improvement action for major crops such as grains and oils, and took the lead in implementing the corn yield improvement project. Variety is the foundation of high corn yield, and further improving the density resistance and planting density of varieties is key to increasing corn yield. Over the past 80 years, corn yields in the United States have increased nearly eightfold, during which the planting density has increased from an average of over 2,000 plants per mu to nearly 6,000 plants per mu, significantly contributing to yield. Against this backdrop, high-density and high-yield breeding has become a trend in corn breeding in recent years. Increased planting density mainly benefits from improving traits such as leaf angle and tassel size, enhancing the canopy structure of corn populations, improving ventilation and light transmission, and achieving a higher photosynthetic efficiency and dry matter accumulation efficiency. In the past decade, China has also made significant achievements in breeding new high-density, high-yield corn varieties, with some leading seed companies performing excellently in recent years 25Q2 Overview: Revenue Growth, Profit Decline, Divergence in Operational Indicators The bank has summarized the major seed companies. In 2025Q2, the main companies experienced significant revenue growth, while most seed enterprises saw a year-on-year decline in profits, primarily due to the second quarter being the traditional return season. The inventory-to-sales ratio, advance payments, and other operational indicators showed divergence: 1) In terms of the inventory-to-sales ratio, as agricultural product prices began to decline in the second half of 2023, the inventory pressure on upstream seed companies has increased over the past two years, but overall, there is healthy destocking. 2) Regarding advance payments, due to the current general industry prosperity, it is unlikely to start collecting advance payments too early, with more focus on the core advance payment situation in the third quarter. From the second quarter, some companies may start early collections, with positive growth in advance payments seen in Kangnong Seed Industry and Dunhuang Seed, with growth rates of 410% and 8.39%, respectively. Risk Warning: Policy approvals falling short of expectations, variety promotion not meeting expectations, natural disaster risks, food safety risks, grain prices not meeting expectations, impacts from overseas agricultural products and seeds