Seed market is expected to bottom out in the third quarter

editor's note

In recent years, some seed stocks are serious, corn and rice seed supply exceeds demand, the number of seed enterprises and seed production area are reduced, and production capacity is reduced. According to the general rule, the seed market will enter the rising cycle after two or three years of low ebb. Last year, the seed production and supply analysis meeting of the National Agricultural Technology Center also predicted that the relationship between seed supply and demand will be better this year. Some analysts in the agricultural materials industry predict that the seed industry will bottom out in the third quarter according to the bottom situation of the industry economic operation and various favorable conditions, but there are also seed enterprises who believe that the market risks of seed industry have not been fully released, and the de-stocking and de-productivity of the two miscellaneous crops have not been completed yet. Which view is more valid? Where does the seed market weather vane point? Ask readers to think.

1.

The rebound benefited from the superposition effect of reducing area, reducing output and favorable policies

Including the planting cycle in 2015, the seed production area and seed production volume of the industry have decreased significantly for three consecutive years. In 2014, the seed production area of hybrid corn nationwide was 2.95 million mu, down 22.77% year-on-year, and the seed production volume was 1.36 billion kg, down 13.38% year-on-year. The seed production area of hybrid rice nationwide was 1.4 million mu, down 14% year-on-year, and the seed production volume was 240 million kg, a new low in 2010. The seed production volume of seed industry decreased obviously. We believe that the main reason is that the leading enterprises actively contracted the seed production area, and the yield decreased due to the adverse impact of bad weather in 2014. In addition, the revision of Seed Law has strengthened the development expectation of the industry. We believe that the revision of Seed Law breaks the bottleneck restricting the development of modern agriculture and provides new driving force for the reform of seed industry in China. The new Seed Law will improve the business environment of current seed industry according to the requirements of modern seed industry development, strive to enhance the independent innovation ability and market competitiveness of seed industry in China, construct scientific and reasonable seed legal system, and promote the sustainable and healthy development of seed industry. And gradually promote the seed industry and international integration. It is expected to improve and standardize the protection of germplasm resources, breeding scientific research system and mechanism, variety management, plant variety protection, seed production and management, supervision and management, seed enterprise support measures and legal responsibilities.

From the perspective of industry supply and demand, the stock volume and seed production area of corn and rice seeds have shown downward inflection points, and the seed production area of hybrid corn and hybrid rice has dropped to a reasonable level. In 2015, the overall situation of oversupply in the industry will be effectively alleviated, and the number of enterprises will also decrease significantly.

2.

Seed industry economic operation has bottomed out, boom recovery is expected in the third quarter

According to the main operation indicators of the industry, all indicators tend to improve. The year-on-year growth rate of operating income of seed industry in China and the growth rate of attributable net profit. According to gross profit rate, net sales interest rate, total market value and other indicators, the decline of operating income of seed industry in the first quarter of 2015 slowed down obviously, the growth rate of attributable net profit turned positive, the gross profit rate reached the recent high point, the net sales interest rate continued to improve, and the market value of the industry reached a new high. It can be judged that the economic operation of seed industry has been bottomed out, and the boom recovery is expected to be in the third quarter. (See tables for data)

According to the year-on-year growth rate of operating income of listed enterprises in the first quarter of 2015, Longping High-tech increased by 9.78% year-on-year, Denghai Seed Industry decreased by 29.46%, Agricultural Development Seed Industry increased by 50.21%, Quanyin High-tech increased by 8.96%, Shennong Dafeng decreased by 24.80%, Dunhuang Seed Industry decreased by 11.97%, Wanxiang Denong decreased by 8.44% and Fengle Seed Industry decreased by 24.57% year-on-year. According to the year-on-year growth rate of attributable net profit, Longping High-tech increased by 6.28% year-on-year, Denghai Seed Industry decreased by 16.74%, Agricultural Development Seed Industry decreased by 376%, Quanyin High-tech decreased by 21.11%, Shennong Dafeng decreased by 157.63% year-on-year, and Wanxiang Denong increased by 169.97% year-on-year. Overall, the seed sector is still in the bottoming stage in the first quarter of 2015. With three consecutive years of decline in the supply side, we expect the seed industry to bottom out in the third quarter of 2015 and gradually enter a 2-3 year upward cycle. Among them, the store-to-sales ratio of corn seed industry is expected to gradually decrease from 100% to 60%, and the space for improvement of supply surface is the largest, and the corresponding corn seed enterprises may welcome investment opportunities for increasing quantity and price.

According to the market feedback, the spring seed market in China started slightly later in 2015 than in previous years, mainly affected by holiday factors. On the whole, the seed market operated smoothly in 2015, and the characteristics of high quality and good price were still obvious. Considering that the market supply is relatively sufficient, it is expected that the later market will continue the characteristics of "parity sales of ordinary varieties and price increase sales of high-quality products". As a result, we maintain that the performance of quality seed companies will continue to grow steadily in 2015.

3.

Policy dividends continue to be released, and corporate profitability improves in the era of mergers and acquisitions

General Secretary Xi Jinping stressed that we should make up our mind to develop ethnic seed industry, pay close attention to cultivating fine varieties with independent intellectual property rights, and ensure national food security from the source. It can be seen that seed industry has risen to the height of national strategy and is expected to continue to enjoy policy dividends in the future. Opinions on Deepening Seed Industry System Reform and Improving Innovation Ability and Central Document No.1 have focused on seed industry for many times, clarified policies and measures to deepen seed industry system reform, and put forward the goal of promoting the development of modern seed industry and building a strong seed industry. Merger and acquisition will be the main means of leading expansion of seed industry in the future, and it is also the direction encouraged by policies. At present, the industry is in the downturn period, which is also the favorable window period for merger and acquisition. At the level of listed companies, Longping High-tech, Dunhuang Seed Industry, Quanyin High-tech, Agricultural Development Seed Industry, Shennong Dafeng and Fengle Seed Industry have announced additional issuance or merger and acquisition and other related matters. The industry has entered the era of merger and acquisition, and the improvement of profitability after industry reshuffle is generally optimistic. At present, the merger and acquisition of seed industry in our country mainly focuses on consolidating and strengthening the main business. It can be seen that some large seed enterprises are stripping off the industries with weak correlation with the main business on the one hand, and seeking suitable merger and acquisition opportunities on the other hand. Generally speaking, the idea of seed industry is gradually focusing on the main business. We believe that the merger and acquisition of seed industry in the future will focus on two aspects: on the one hand, the merger and acquisition of small and medium-sized seed enterprises with superior varieties, and on the other hand, the merger and acquisition of scientific research institutes or research companies to supplement R & D capabilities.