Soybeans fall to a five-year low for big business benefits

Soybeans fell to a five-year low, companies benefited greatly.
2016-02-22 9:30 Source: First Financial Daily

fengyi International, China's largest edible oil supplier, announced its 2015 financial report during the Spring Festival. Benefiting from the sharp drop in soybean prices in the international market, the company's grain and oil business achieved a pre-tax profit of about US $0.69 billion, a year-on-year increase of about 98%.

Soybeans are the main raw material for domestic edible oil producers, and soybean prices have fallen. China Grain and Oil Holdings (606.HK), a Hong Kong-listed subsidiary of COFCO, is expected to significantly reduce losses or even make profits.

Fengyi International's grain and oil business with brands such as "Golden Dragon Fish" and "Xiangmanyuan" includes the trading and processing of grain and oil raw materials, covering the brand building and distribution of small packaging edible oil, rice, flour, noodles, and rice noodles. Medium packaging and large Packaging grain and oil products are also included.

The financial report shows that in the 2015 fiscal year, Fengyi International sold 28.7 million tons of grain and oil products worldwide, an increase of 3.6 million tons over the previous fiscal year. In terms of small-package grain and oil products, Fengyi International's annual sales volume was 5.1 million tons, down from 5.3 million tons in the previous year. Small package palm oil originally belonged to small package grain and oil business, and was transferred to tropical oil business in fiscal year 2015. Fengyi International said that if small package palm oil was added, the sales volume of small package grain and oil products increased by 12.5 in fiscal year 2015 compared with the same period last year.

In fiscal year 2015, Fengyi International's grain and oil business achieved a pre-tax profit of about US $0.69 billion, up 98% from about US $0.35 billion in fiscal year 2014. The company said that the main reason was that the profit from soybean crushing was relatively stable.

According to the latest research report released by the U.S. Department of Agriculture, the average soybean price (farm price) in the United States fell by about 15% from $378 per ton in January 2015 to $322 in December. In the 2014/15 market year, the average soybean price (farm price) in the United States was only $362 per ton, the lowest in five years since the 2010/11 market year.

In 2015, the international soybean supply and demand remained loose. Under the influence of negative factors such as the South American soybean harvest and the large sown area in the new production season in the United States, the international soybean price showed a downward trend. The overall situation of domestic soybean processing industry improved.

China Cereals and Oils Holdings and Fengyi International are both among the top edible oil processing companies in China. In the first half of 2014, China Cereals and Oils Holdings suffered a huge loss of about HK $1.05 billion in soybean and other oilseed processing businesses; after the decline in soybean prices, oilseed processing in the first half of 2015 The loss narrowed to about HK $0.28 billion.

In contrast to Fengyi International's grain and oil business, the authors expect China Grain and Oil Holdings to achieve a significant reduction in oilseed processing and even profitability in fiscal year 2015.

Ning Gaoning, the former chairman of COFCO Group, once proposed the "whole industry chain strategy". Prior to this, Fengyi International had entered the upstream fields such as palm oil cultivation in the international market and brought it a lot of returns. However, the turbulence of the market has also brought an impact on the enterprises operating in the whole industrial chain. It is possible to lose the mulberry and gain the east corner; it is also possible to gain the east corner and lose the mulberry.

In 2015, despite a significant increase in pre-tax profits in the grain and oil business, Fengyi International's palm oil business did not perform well. Take the price of palm oil in Malaysia as an example. In the 2010/11 market year, the average price of palm oil once reached an all-time high of US $1154 per ton. Since then, it has been declining all the way. By January this year, the average price of palm oil in Malaysia dropped to US $550 per ton, almost halving.

The sharp drop in palm oil prices affected the overall performance of Fengyi International. In fiscal year 2015, Fengyi International's palm oil sales fell 4.5 percent year-on-year to 23.5 million tons. Coupled with lower prices, full-year revenue fell 23.3 percent year-on-year to $15.6 billion.

Combining various business units, Fengyi International's revenue in 2015 was about US $38.78 billion, a decrease of 10% year-on-year; realized a profit of about US $1.06 billion, a decrease of 8.7.

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