China has slowly increased its imports of U.S. soybeans this year, underscoring how Beijing is gradually ramping up domestic production thanks to policy support. “The improving trend in food self-sufficiency reflects China’s efforts in energy and chip security,” Goldman Sachs analysts said in a Dec. 9 report on trends in Chinese agricultural stocks. Key Chinese government policy documents have emphasized the need to support domestic agriculture, especially in recent years. Soybeans are particularly important as a major ingredient in livestock feed. Goldman analysts expect China to be able to significantly reduce its need for imported soybeans thanks to fundamental improvements in arable land and management of feed demand. Specifically, they predict that China’s corn and soybean yields could jump from about 50% today to 80% to 85% of those in the United States by 2035, while reducing soybean content in animal feed by 25%. This is a big change, considering that China is the world’s largest soybean importer and was the largest purchaser of U.S. soybeans until it suspended purchases for much of this year due to escalating trade tensions. After the two countries reached a trade ceasefire in October, China resumed purchasing U.S. soybeans, but so far at lower volumes than originally expected. Goldman analysts said China has “stabilized its (grain) import dependence for the first time in 20 years” and “may now be reversing course or building the capacity to do so.” Analysts also noted that China’s average annual public sector spending on agricultural research and development reached $6.6 billion from 2019 to 2021, five times more than 20 years ago and more than in major peer countries. Here are three thematic plays for stocks that Goldman rates as buys. Biotechnology seeds: Shenzhen-listed Dabeineng, target price is 7.5 yuan ($1.06). “Seeds are the core of crop production and the ‘chips’ of food production, and their quality and characteristics directly impact yield performance,” the report said. Analysts predict that Daveynon’s dominance in indigenous biotech seeds will give the company significant potential in the genetically modified crops market. Agricultural machinery: Hong Kong-listed First Tractor, target price HK$14 ($1.80). Goldman has begun covering China’s largest agricultural tractor maker by 2024 sales revenue. “Given China’s transition to agricultural modernization to achieve food security, we see First Tractors as well-positioned to capture the structural growth opportunities presented by China’s trends in tractor upsizing (toward high-horsepower tractors) and upgrading (towards intelligent tractors),” the report said. Slow-release fertilizer production company and product improvement: Shanghai-listed Yunnan Yuntianhua, target price 45 yuan. Stock analysts also began reporting that Yun Tianhua is China’s top fertilizer producer, accounting for 10% of the domestic market and 20% of the fertilizer input market. “As one of the few large domestic producers that is 100% self-sufficient in upstream resources, we expect YTH to fully capture upstream profits from fertilizer production from 2025 to 2030E,” the analysts said, noting that the stock offers the highest dividend yield in China’s agricultural sector.
