HS-全球-农业行业-全球农业：美中贸易协议手册-2020.2-26页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Asset/SubcategoryFebruary 2020Equities&Economics|AgribusinessGlobal AgribusinessEquities&EconomicsAgribusinessFebruary 2020By:Alexandre Falcao,Santhosh Seshadri,Andy Li,ShanellaRajanayagam and Augusto EnsikiGlobal AgribusinessUS-China trade deal playbookPhase I trade deal is about more than purchase targets;could potentially impact sectors,trade flows and economiesChina could buy about two-thirds of its promised target of US ag products in 2020,but coronavirus could be a wild cardUS farm products likely to be biggest beneficiaries of the deal;Brazil at a disadvantage 1 Equities&Economics Agribusiness February 2020 Executive summary 4 Trade deal is about more than purchase commitments 4 US ag products likely the biggest beneficiaries 4 Chinas commitments unlikely to crowd out other trading partners 5 Can China honor its purchase commitments?5 What are the possible market conditions and their implications?6 Implications on US crop and crop-input markets 6 Brazil agribusiness is at a disadvantage 7 Implications for China agribusiness 7 Agricultural trade in charts 8 US China trade deal 10 Impact on trade flows 10 Impact on grains market 13 Possible market conditions and their implications on ag purchases 15 Impact on Brazilian exports and transportation 15 Impact on fertilizers 16 Impact on Chinas agribusiness 17 Valuation and risks 18 Disclosure appendix 21 Disclaimer 24 Contents THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA Equities&Economics Agribusiness February 2020 2 Agricultural trade flow China vs the world(USDbn)Source:UN Comtrade(2018 values)Soybeans(7.1)Fish&crustaceans(1.1)Grains(0.9)Fruits,Nuts(0.8)Meat(0.5)Animal fodder,Residue,wastes of food(0.5)Beverages,spirits and vinegar(0.4)Dairy(0.3)Fat products except edible oil(0.3)Meat(2.8)Soybeans(28.8)Cereal food,flour,starch(3.4)Beverages,spirits and vinegar(2.9)Meat(1.6)Fish&crustaceans(0.3)Oil seeds(except soy bean)(2.3)Fish&crustaceans(0.9)Grains(0.9)Soybeans(0.8)Edible vegetables and certain roots,tubers(0.6)Animal fodder,Residue,wastes of food(0.5)Meat(0.5)Brazil32.6EU(ex.UK)11.4US14.2Canada(7.7)New Zealand(6.7)Australia(6.8)Indonesia(5.1)Thailand(5.6)Russia(3.2)Malaysia(2.3)UK(0.7)0.3 0.1 1.5 1.4 0.5 1.3 0.1 1.8 0.5 0.6 0.4 0.4 3.0 1.3 3.0 2.0 0.5 0.4 0.2 0.8 1.0 0.1 0.1 0.2 0.4 0.1 0.3 0.2 0.8 0.4 2.0 1.5 1.6 1.4 012345678UKMalaysiaRussiaThailandIndonesiaAustraliaNew ZealandSoybeansMeatGrainsFish&crustaceansDairyPalm/Edible oilFruits,NutsBeverages,spirits and vinegarAnimal fodder,Residue,wastes of foodEdible vegetables and certain roots,tubersCereal food,flour,starchOil seeds(except soybeans)Fat products except edible oilCocoa and cocoa preparationsMeat productsOthersImports from major suppliersImports from othersBrazilUSEU(ex.UK)Canada 3 Equities&Economics Agribusiness February 2020 HSBC Global Ag/Food Coverage Company BBG Analyst Currency Rating Target price Closing Market cap _EV/EBITDA_ _P/E_ Ticker price USD m 2020e 2021e 2020e 2021e LatAm Agribusiness Adecoagro AGRO US Alexandre Falcao USD Buy 9.00 7.37 866 5.0 4.2 12.8 7.6 Sao Martinho SMTO3 BZ Alexandre Falcao BRL Buy 24.00 25.04 2,092 6.0 5.2 16.1 14.3 Cosan SA CSAN3 BZ Alexandre Falcao BRL Buy 68.00 81.4 7,564 6.4 5.6 17.6 15.9 Cosan Ltd CZZ US Alexandre Falcao USD Hold 15.00 22.18 2,783 2.7 2.2 12.8 10.4 Rumo RAIL3 BZ Alexandre Falcao BRL Hold 24.00 23.26 8,557 10.7 8.9 31.0 22.0 Median 6.0 5.2 16.1 14.3 Protein/Food Cranswick CWK LN Doriana Russo GBP Buy 36.30 35.72 2,423 13.2 12.2 22.8 21.4 JBS JBSS3 BZ Alessia Maria Apostolatos BRL Buy 37.00 28.12 18,107 4.0 3.7 5.7 6.0 Marfrig MRFG3 BZ Alessia Maria Apostolatos BRL Buy 14.00 11.25 1,888 2.9 3.0 7.1 8.8 Haid Group 002311 CH Andy Li*CNY Buy 43.00 33.00 7,428 13.7 11.7 19.4 16.6 Muyuan Foods 002714 CH Andy Li*CNY Hold 88.00 73.60 23,110 6.2 7.5 6.6 8.9 Wens Foodstuff Group 300498 CH Andy Li*CNY Buy 45.00 29.41 22,249 4.6 5.0 5.6 6.8 BRF S.A BRFS3 BZ Alessia Maria Apostolatos BRL Buy 41.00 31.57 6,053 5.0 4.5 8.5 10.6 Median 5.0 5.0 7.1 8.9 Biotech Jinyu Bio-Technology 600201 CH Andy Li*CNY Buy 24.00 18.79 3,014 13.6 9.4 35.5 25.6 Genus GNS LN Anand Date,CFA GBP Buy 32.60 30.80 2,608 25.0 22.1 37.6 33.4 Median 19.3 15.8 36.5 29.5 Global Fertilizers CF Industries CF US Alexandre Falcao USD Buy 55.00 39.75 8,643 7.4 6.7 16.0 13.8 Mosaic MOS US Alexandre Falcao USD Buy 28.00 19.96 7,560 4.7 3.9 10.6 8.3 Nutrien NTR CN Alexandre Falcao USD Buy 62.00 42.84 24,541 6.3 6.0 13.8 13.4 Saudi Arabian Fertilizer SAFCO AB Nicholas Paton,CFA SAR Hold 77.60 74.00 8,218 14.9 12.3 20.8 16.9 OCI NV OCI NA Nicholas Paton,CFA EUR Buy 26.60 15.25 3,553 4.1 2.8 6.5 5.1 Median 6.3 6.0 13.8 13.4 China Fertilizer Zangge Holding 000408 CH Eric Shen CNY Buy 9.93 6.33 1,798 4.3 2.7 7.7 6.4 Xinyangfeng 000902 CH Eric Shen CNY Buy 11.83 6.82 1,267 5.0 3.7 9.1 6.9 Sinofert 297 HK Eric Shen HKD Buy 1.08 0.79 714 5.1 5.0 9.3 8.6 China BlueChem 3983 HK Eric Shen HKD Buy 2.54 1.61 367-7.3 5.7 Salt Lake Industry 000792 CH Eric Shen CNY Reduce 2.28 8.06 3,198 6.6 5.6 15.7 11.0 Kingenta 002470 CH Eric Shen CNY Hold 2.78 2.30 1,076 2.8 1.8 10.5 7.5 Median 4.6 3.2 9.2 7.2 India Agri inputs Bayer Crop Science BYRCS IN Saurabh Jain INR Hold 3,650.00 4,255.25 2,681 44.5 37.4 51.1 42.6 Dhanuka Cropscience DAGRI IN Saurabh Jain INR Buy 530.00 503.25 336 14.3 11.9 19.9 16.5 Kaveri Seed KSCL IN Saurabh Jain INR Hold 480.00 466.95 395 8.7 7.3 14.5 12.8 Coromandel International CRIN IN Saurabh Jain INR Hold 510.00 629.65 2,584 12.9 11.4 22.2 18.9 Rallis India RALI IN Saurabh Jain INR Hold 187.00 231.75 632 15.3 12.7 23.3 19.8 UPL UPLL IN Saurabh Jain INR Buy 680.00 513.30 5,499 8.5 6.9 14.7 11.0 Median 13.6 11.7 21.1 17.7 Source:HSBC Estimates Priced on 03 Feb 2020*Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Equities&Economics Agribusiness February 2020 4 Trade deal is about more than purchase commitments China has pledged to buy USD40bn worth of agricultural products from the US by the end of 2021,more than 80%higher than pre-trade tension levels(2017 base).In addition to purchase commitments,the agreement outlines a number of provisions to tackle non-tariff barriers that are US-specific.China will recognize a number of US agricultural regulations and will make strides to streamline certain processes that should help facilitate trade in US agricultural goods.For instance,China will implement a transparent science-based regulatory process to authorize agricultural biotechnology products,which should reduce the average application review time for animal feed or further processing to 24 months(currently about 5 to7 years).Value of Chinese agricultural imports from the US Notes:e=estimated based on Phase One deal commitments.WTO definition for agriculture which may differ from that considered in negotiations.Source:HSBC and WITS US ag products likely the biggest beneficiaries US meat and soybean exporters are likely to be the biggest beneficiaries of the deal,given Chinas purchase commitments and provisions to remove Chinese non-tariff barriers.In the context of ASF,US meat exports to China could increase notwithstanding remaining Chinese retaliatory tariffs and US capacity constraints to ramp-up production in a short timeframe.There could also be opportunities for US exporters of seafood,dairy and horticultural products,as well as for producers of agricultural biotechnology.05101520253035404505101520253035404519971998199920002001200220032004200520062007200820092010201120122013201420152016201720182020e2021eUSDbnUSDbnChinese agriculture imports from the USExecutive summary China has pledged to buy an additional USD32bn of US products over the next two years US exports could return to pre-trade tension levels and still provide space for all participants Some questions remain,but we see the US ag sector as a key beneficiary of trade deal 5 Equities&Economics Agribusiness February 2020 Chinas commitments unlikely to crowd out other trading partners Chinas commitments could impact global trade flows in agricultural products.As a result,other large agricultural exporters to China such as Brazil,Australia and New Zealand could be placed at a competitive disadvantage.However,China has reassured other suppliers of agricultural commodities that they will not be affected by the accord as buying will be based on“market principles”.Moreover,it may take time for Chinese import sources to rejig given lead times for orders and potential US production constraints.Overall,it is unlikely that additional US exports owing to the Phase One trade deal will completely crowd out Chinese imports from other markets.2018 China agricultural imports by category 2018 China agricultural imports by country Source:USDA,UN Comtrade Aqua products-*Fish and crustaceans Source:USDA,UN Comtrade Can China honor its purchase commitments?As the world is heading towards tighter grain and meat supplies,purchase of US ag products is inevitable for China.The trade deal paves the way for increased ag trade between the countries.However,meeting the targets would also depend upon US capacity constraints and other market factors.In our view,US exports to China could reach pre-trade tension levels without much difficulty,which equates to 2/3rd of the promised value for 2020.This would align with Chinas condition to stick to“market principles”and should also mitigate the impact on trade flow of other countries.A 100%achievement of the 2020 target would be possible by substantially increasing soybean and meat purchases(if China buys 80%of its soybean import needs from the US,that alone would equate to c80%of the 2020 purchase target),but that would be highly disruptive for global trade and China might not want that.Sensitivity of US ag export values to changes in US soybean market share Market share of US soybeans 20%30%40%50%60%70%80%US soy exports to China(USDbn)7.0 10.5 14.0 17.5 21.0 24.5 28.0 Products excluding pork and soy-pre trade tension levels(USDbn)7.7 7.7 7.7 7.7 7.7 7.7 7.7 US pork exports to China-30%of 2020 imports(USDbn)2.7 2.7 2.7 2.7 2.7 2.7 2.7 China as%of total US pork exports 34%34%34%34%34%34%34%Total export value(USDbn)17 21 24 28 31 35 38 Incremental exports vs 2018 base 23%47%72%97%121%146%170%of 2020 target 51%61%71%81%91%101%112%of 2021 target 42%51%59%67%76%84%93%Source:HSBCe,USDA,China Customs,UN COM trade 34%9%8%7%7%5%30%OilseedsMeatAqua productsEdible fruitsFat productsFlour,dairyOthers26%11%6%6%5%4%4%38%BrazilUSACanadaAustraliaNew ZealandThailandIndonesiaOthersTrade flow levels prior to tariff tensions should provide space for all the participants Equities&Economics Agribusiness February 2020 6 What are the possible market conditions and their implications?Chinas commitments were qualified by the words subject to market conditions,raising scepticism about trade deal execution.We think those words imply that China would not want unfavorable pricing or excessive dependency on the US.Hence we believe that Chinese imports could go back to pre-trade tension levels without affecting market pricing as that should leave space for everyone.Other market factors that affect supply and demand dynamics and hence trade flow include the seasonality of US exports,2019/20 US and LatAm crop production estimates,and African Swine Fever(see details on page 15).The outbreak of coronavirus adds another angle as it could disrupt demand for ag products and trade flow.The US could however offset the impact through market share gains of soybeans,assuming the deal is by and large enforced.The bigger risk would be China not fulfilling some or all of its purchase commitments under the deal as a result of the outbreak.Implications on US crop and crop-input markets The trade deal could recoup some of the lost demand for soybeans in China due to higher tariffs.Global supply dynamics seem to be positive for soybeans whose stock to use has reduced considerably due to a poor harvest in the US in 2019.Hence,higher exports from the US could tighten the market and lift global soybean prices.In addition,China needs more corn to replenish domestic stock levels,which is incrementally positive.Some of the benefits should pass through to fertilizers as farmers will likely increase spending on crop inputs.In particular,US farms are believed to be nutrient-deficit due to underapplication of fertilizers and wash-away due to severe flooding,which should aid investment in fertilizers.As a result,the US retail crop input market stands to benefit while the impact on NPK(nitrogen,phosphorus,potassium)commodities and companies is idiosyncratic,with urea seemingly the most defensive among NPKs.This is positive for Nutrien(NTR US,Buy,CMP USD42.84),CF Industries(CF US,Buy,CMP USD39.75),and Mosaic(MOS US,Buy,CMP USD19.96).US soybean production,consumption,stock to use ratio Global stock to use ratio(%)Source:USDA Source:USDA 0.0%10.0%20.0%30.0%40.0%50.0%-20.0 40.0 60.0 80.0 100.0 120.0 140.02015/20162017/20182019/2020pProduction(mt)Consumption(mt)Stock to use RHS10.0%15.0%20.0%25.0%30.0%35.0%40.0%2011/122013/142015/162017/182019/20pSoybeanCornWheatUS crop input retail market stands to benefit from potentially higher farm spending 7 Equities&Economics Agribusiness February 2020 Brazil agribusiness is at a disadvantage Brazilian agribusinesses could shed some of the windfall gains earned during the trade tension period.Even before trade deal,Brazilian exports were forecast to normalize in 2020,with soybean exports forecast to grow c3%and corn exports forecast to decrease c10%in 2020.From a growth perspective,this is slightly negative for Brazilian exports.Thankfully,domestic feed demand for soybeans has been good so far which could mitigate the impact on stock levels and prices.Lower exports could act as a key headwind to Rumos volumes.Market share gains for Rumo are increasingly difficult to achieve given competition from new roadways like BR-163.Our 2020 estimates imply growth of 11%for Rumos ag volumes and in our calculations every 5 ppt change in volumes would change 2020 Net Income by 12%.Implications for China agribusiness On the agriculture part,overall,the agreement should help China to reduce protein shortages due to ASF.However,meat imports from the US will still be a very small proportion compared with Chinas large demand,hence we expect the price of pork to stay high in 2020.For soybeans,China imports over 80%from countries other than the US.The agreement will help China to lower the tariff and import more soybeans from the US,should lower the price of soybean,and should slightly benefit the feed producers in China.For wheat,rice,and corn,the trade deal is not a needle-mover as imports account for a very small proportion of these crops.In our opinion,feeds leader Haid Group(002311 CH,Buy,CMP RMB33.00)