RSS
Twitter
Linked In
News In
News
Linked In
RSS
https://twitter.com/Agrimoney
http://www.newsnow.co.uk/h/Industry+Sectors/Agriculture

You are viewing 1 of your 2 complimentary articles.

Register now to receive full access.

Already registered?

Login | Join us now

ABF takes another step out of China sugar, with $500m cane arm sale

Twitter Linkedin

Associated British Foods revealed a second retreat in 18 months in Chinese sugar production, an industry marred by high cane costs, and where talk of a sell-off of government stocks threatens a further squeeze on margins.

The grain trading-to-clothes retailing group said it had "reached agreement to sell" its cane sugar business in southern China to a consortium led by state-backed producer Nanning Sugar.

The deal, in which Nanning has been backed by Chinese private equity funds Minsheng Royal Capital Investment and Guangxi Royal Construction Investment, values the assets at $500m, according to Reuters.

And it follows last year's decision to shut Yi'an and BoCheng sugar beet processing operations in northern China, where it retains some beet operations.

Margin squeeze

The moves come amid a difficult time for Chinese cane sugar producers - responsible for some 90% of domestic output - which are believed to have suffered four successive years of losses.

Losses have been attributed to elevated cane costs – supported first by a regulated crop price, and then by a switch to other crops once this support was removed – while sweetener prices are undermined by huge imports of smuggled sugar, estimated at 1.5-2m tonnes a year.

In Guangxi, the top sugar producing province, sugar output costs last year, at 5,600-5,800 yuan a tonne, far exceeded market prices of 5,400 yuan a tonne, according to Bright Foods China.

Meanwhile, beet processors have struggled from a switch by growers to more profitable crops - forcing factories to run at lower operating levels, or scour further for raw material, dynamics both negative for margins.

Chinese beet area fell more than 20% to 630,000 hectares in 2015-16 alone, according to US Department of Agriculture's Beijing bureau.

Stocks sale

Talk of China releasing sugar from its inventories, estimated by Marex Spectron at potentially 6.5m tonnes, has undermined further prospects for industry margins, in implying downward pressure on prices.

"It looks as if the decision to release stock from the government stockpile has been taken," the London broker said.

Such a disposal would come amid a broader effort by China to cut its agricultural commodity stockpiles, with auctions of crops such as corn, cotton and soybeans ongoing.

And in sugar there is the potential for limited losses on disposals, with China purchasing sugar for its reserves most lately in 2013, at a base price of 6,100 yuan a tonne, not far above current levels in the futures market.

Shares tumble

ABF made its announcement as it revealed a boost to profitability prospects at its sugar business, where "underlying revenue and adjusted operating profit" for the year to September 17, "at both actual and constant currency, will be ahead of last year.

"A reduction in EU stock levels and an increase in world sugar prices resulted in a strengthening of European sugar prices which benefited our Spanish business," although it will not be until next year, after contract renewal, that the impact will be felt on the UK operations.

Nonetheless, shares in the UK-based group tumbled 9.9% to 2843p in London, as a caution of a 2% drop in like-for-likes sale at the Primark retail chain surprised investors.

Primark sales were "affected by unseasonable weather - warm weather in the pre-Christmas period and a very cold March and April", ABF said.

The group also said its full-year results in agriculture would show operating profits "just below" those a year before, hurt by weaker profits in UK feed, an industry marred by the dent to dairy industry profit from weak milk prices.

"Good results from the specialist businesses and a strong finish for Frontier Agriculture," the grain trading joint venture with Cargill, "were more than offset by lower UK feed profits".

By Mike Verdin

Twitter Linkedin
Related Stories

Evening markets: South American double whammy brings ags back down to earth

Ags lose early gains, undermined by a tumble in Brazil’s real, and falling rain in Argentina. Still, wheat futures remain in positive territory

Can cotton prices extend their rally?

History suggests futures will not stay long in the 70s cents a pound. So which way will they trend?

Morning markets: Hard wheat regains premium over soft, amid US dryness worries

Kansas City wheat outperforms, as Plains precipitation worries extend to a dearth of snow cover. But Kuala Lumpur palm oil hits a 16-month low

Evening markets: Ags gain, as funds begin to get that year-end festive mood

Ag prices recover, helped by the likes of more positive comment on US export competitiveness, and some more negative talk on Argentine rains
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© Agrimoney.com 2017

Agrimoney.com and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of the Briefing Media group
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069