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Russia and Ukraine, together, mark an important force in the agricultural sector. The Russia-Ukraine conflict has been a major shock to agricultural commodities, with already high prices surging further following sanctions imposed on Russia.
In China, certain commodities like corn, raw milk, sugar, wheat, and soybean meal have seen moderate increases in price. But others have risen more drastically. In March alone, palm oil prices jumped 72% and some packaging raw materials like aluminium rose 30%. DBS Group Research conducted a sensitivity analysis to assess the impact on the various food and beverage sectors in China.
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Upstream plays
We prefer upstream plays like China Modern Dairy and COFCO Joycome in the short run as we believe mid-downstream processors could face higher cost pressure in 1H22 and affect near-term sentiment.
On the back of rising agri-commodity prices, upstream players may benefit better from the uptrend.
Leading dairy companies
Things are looking more resilient in the dairy sector as raw milk prices stayed largely stable despite the rise in soybean prices.
We expect leading dairy companies like China Mengniu Dairy to be able to offset cost impacts by passing on the costs to consumers, as well as producing higher-margin products like milk powder and ice-cream.
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