Zhongtai Securities: The oversupply in the planting industry is relatively common, and the level of prosperity depends on the recovery of demand

According to the Zhitong Finance APP, Zhongtai Securities released a research report stating that due to ample supply and poor downstream demand, the performance of various sectors in the planting industry is expected to be poor in the first three quarters of 2024. In the fourth quarter, with the overall environment warming up, various sectors are expected to achieve excess returns driven by restructuring and long-term capacity reduction in certain targets. However, the prosperity of the planting industry in 2025 will still depend on the downstream market, especially whether terminal demand can recover under low-price stimulation. The firm believes that some high-inventory industries cannot achieve real upward trends solely by relying on supply-side contraction; in the short term, attention can be paid to low-inventory or continuously contracting capacity industries.

The main viewpoints of Zhongtai Securities are as follows:

Due to ample supply and poor downstream demand, the performance of various sectors in the planting industry is expected to be poor in the first three quarters of 2024. In the fourth quarter, as the macro atmosphere eases and the index rises, various sectors are expected to rebound to varying degrees, with some targets achieving excess returns driven by restructuring and long-term capacity reduction. Whether the prosperity of the planting industry can rebound in 2025 needs to observe whether the downstream market can warm up: whether insufficient terminal demand can be effectively activated by low prices, and attention should be paid to low-inventory or continuously contracting capacity industries. Some high-inventory and high-capacity industries can only rely on temporary supply-side contraction and cannot bring about a sustained upward trend.

Seed Industry: 2024 marks the first year of market sales for genetically modified seeds, with retail prices generally 30-50% higher than traditional seeds. Although they can only be produced and sold in limited areas, the reputation for high yield has begun to accumulate. To date, China has approved 81 genetically modified corn and soybean varieties through national certification, and it is expected that more provinces will promote genetically modified field planting in 2025. In 2024, both the area for seed production and the cost of seed production are expected to decline, marking the official entry of the industry into a capacity reduction cycle. In the past two years, grain prices have frequently hit new lows, leading to a decline in corporate gross margins, an increase in return rates, and a narrowing of pre-sale scales, which have become the main reasons for the industry's downturn.

The seed industry has seen the most concentrated mergers and acquisitions in the agricultural sector in recent years, with several industry leaders controlled by state-owned and central enterprises. There is a unified consensus that external mergers and acquisitions have become the core engine for the development of industry leaders—driven by declining prosperity and policy empowerment, the industry is accelerating integration, and merger events may occur frequently. The seed industry is a technological pioneer in the agricultural sector, characterized by low research and development and shallow barriers compared to other agricultural sub-sectors. High research and development investment, strong policy barriers, and strong brand recognition are the technological characteristics exhibited by the seed industry. In the long run, competition in the seed industry stems from technological competition, and overseas experience suggests that future seed industry leaders will also be excellent technology companies. Although performance is under pressure, there is still room for valuation recovery, and high-quality leading companies may identify the bottom ahead of the industry.

Rubber: Rubber is the star variety of the planting industry chain in 2024. The market is beginning to pay attention to the cumulative impact of continuous capacity reduction in global natural rubber. From the tight correlation of stock and futures throughout the year, the market has not yet formed a comprehensive consensus on the new price cycle. The rigid rise in labor and land costs in Southeast Asia is irreversible, and the relative benefits of alternative planting remain. Hainan Rubber, as a global leader in natural rubber, benefits from the opening of a new rubber cycle. After the consolidation of Hesheng Agriculture, the short-term disadvantages outweigh the advantages, but it will enhance profitability in the long term after the upward cycle. After being washed by Typhoon Mawar and the layout in African production areas, the company's dry rubber output is expected to increase in 2025 Sugar: The global sugar inventory-to-consumption ratio is the lowest among mainstream agricultural products, both in horizontal and vertical comparisons. Over the past five crushing seasons, there has been a cumulative global shortage of 7.914 million tons. Starting from the negative oil prices in April 2020, international sugar prices have had the highest relative returns among mainstream agricultural products over the past two years, with the downward shift mainly affected by weak macro demand and a collective slump in agricultural products. If the commodity market remains weak, domestic and international sugar prices will respond with wide fluctuations. The correlation between China's sugar prices and the international market is becoming increasingly tight, and the increased volatility in the industry will test the overall quality of domestic sugar enterprises. Companies with diverse business models and excellent risk management capabilities will see their valuations uplifted.

Agricultural Products Processing: Prices of agricultural products such as soybeans, corn, and oils are expected to remain low for an extended period, and leading downstream companies with improved competitive dynamics will enjoy a low-cost dividend period.

Risk Warning: Policy implementation effects may fall short of expectations; downstream demand may experience a sharper-than-expected decline; weather may change beyond expectations; data used in research reports may not be updated in a timely manner