[Zheng Commercial Institute’s “Commercial Storage Worry-free” Pilot Program Helps Stable Supply of Chemical Fertilizers in Spring Plowing]During the Ching Ming season, wheat is growing vigorously in the plain of northern Henan, which is a vibrant scene. As the “food” of grain, urea plays an important role in the growth of wheat and other crops. (China Securities Journal)
During the Ching Ming Dynasty, wheat is growing vigorously in the plain of northern Henan, giving rise to a vibrant scene. As the “food” of grain, urea plays an important role in the growth of wheat and other crops.
In December 2020, ZCE aimed at the “pain points” of fertilizer supply and demand, and launched the “Commercial Storage Worry-Free” pilot for storage companies participating in the national fertilizer commercial reserve project, providing a powerful starting point for storage companies to avoid inventory depreciation risks and stabilizing fertilizers Supply, ensure food security, serve the revitalization of rural areas and contribute to futures strength.
Futures trends become the industry’s vane
In order to ensure a stable supply of fertilizers during the “spring plowing” season, the urea industry has always had the habit of “short-storing”. Since its establishment in 2004, the national fertilizer off-season reserve system has played an important role in stabilizing the market price of fertilizer and ensuring the supply of fertilizer for spring farming. Public data shows that there will be a total of 8.05 million tons of spring fertilizer reserves from 2020 to 2021, of which the urea reserve is not less than 40% (332 million tons). The winning bidder will choose between September 1, 2020 and April 30, 2021. Any storage for 6 consecutive months.
Henan is a large agricultural province and a large province of chemical fertilizers. Wanzhuang Anyang Logistics Park Co., Ltd. (“Wanzhuang Logistics Park”), located in Anyang City, Henan Province, is close to Tangyin East Station of Wari Railway. It is an important logistics node and distribution center for the transportation of fertilizers from Shanxi Province to Shandong Province. It plays an important role in ensuring fertilizer for farming in Henan Province. The relevant person in charge of the Wanzhuang Logistics Park told the reporter that according to the National Fertilizer Commercial Reserve Management Measures, fertilizer off-sale storage follows the basic principles of enterprise storage, government subsidies, market operation, and self-financing. Storage companies participating in the national commercial reserve of chemical fertilizers need to guarantee at least three months of fertilizer storage time. During this period, storage companies bear the risk of falling fertilizer prices and cannot avoid risks through traditional means such as reducing inventory and selling in advance. In recent years, when the storage period expires, the sales price of chemical fertilizers is lower than the storage price, and the storage cost factors such as warehousing and capital occupation are superimposed, resulting in more losses for storage companies. Stabilizing market prices and breaking the cycle of fertilizer supply and demand has become an urgent problem for the agricultural materials industry.
On August 9, 2019, urea futures were listed and traded on the Zhengzhou Commodity Exchange. The overall operation was stable, and the futures prices were highly correlated. The unique price discovery and risk management functions of the futures market were favored by the majority of urea industry enterprises. Through hedging, The uncertain price risk is converted into a determined basis profit; through warehouse receipt financing, fixed goods can be converted into liquid cash. The relevant person in charge of Anhui Huilong Agricultural Materials Group Co., Ltd. (“Anhui Huilong”) told reporters that in the past there was a saying in the industry called “China’s urea sees Shandong”. Now it is “China’s urea sees futures.” The trend of urea futures has become the whole The weather vane of the industry’s prosperity.
Innovatively launch the “Commercial Storage Worry-Free” pilot
The relevant person in charge of ZCE told reporters that in order to support urea companies to actively participate in national commercial reserves, to alleviate the risk of inventory depreciation of storage enterprises, and to ensure food security, ZCE has listened to the voices of all parties in the market and innovated to carry out urea “commercial storage worry-free” Pilot. In December 2020, through public solicitation and strict review, ZCE identified five projects in Henan, Anhui, and Shandong provinces with a total of 100,000 tons of urea to participate in the first batch of pilots. The participants in the pilots were the urea trading state-owned enterprises Zhongnong Group and Zhongnong Group.SinofertLimited company (abbreviated as “Sinofert”), Anhui Huilong, a provincial agricultural resources company, Chengdu, a urea consumer companyYuntu HoldingsLimited liability company (abbreviated as “Yuntu Holdings”) and Henan Wanzhuang Fertilizer Trading Market, a urea trading company. By supporting project entities to use the futures market to carry out hedging, reduce the risk of falling prices of enterprises in the process of undertaking urea storage, enhance the enthusiasm of enterprises to undertake storage, and promote the urea futures market to effectively serve the country The commercial reserve of chemical fertilizers contributes to ensuring the supply of fertilizer for spring plowing and stabilizing the cost of agricultural planting.
With the support of ZCE’s innovative measures of “Commercial Storage Worry-free”, a group of industry-leading enterprises have effectively combined urea futures with the national fertilizer commercial reserve project to further guarantee the use of fertilizer for spring farming.
As the “national team” of the agricultural materials industry,SinofertThe relevant business person in charge of the Henan branch said that the “Commercial Reserve Worry-Free” pilot project embodies the spirit of ZCE’s responsibility in serving the real economy. Last year, after the country introduced the fertilizer commercial reserve policy, Sinofert has been exploring ways to undertake short-lived reserves within its own business scope. With the availability of urea futures tools, Sinofert’s enthusiasm for holding reserves has increased significantly. In 2020, Sinofert will undertake more than 1 million tons of reserves, including 420,000 tons of spring fertilizer. Sinofert Henan Branch undertakes a total of 50,000 tons of reserves, of which 35,000 tons of urea, more than 70% of which are hedged through the futures market to lock in risk exposure. With the recent completion of the commercial storage project, Sinofert Henan Branch has also registered part of the urea in the warehouse that meets the delivery standards as futures warehouse receipts. “With the urea futures and the’Commercial Storage Wuyou’ project, we have successfully avoided the risk of urea price fluctuations during the storage period, effectively safeguarded corporate profits, and have more confidence in assuming national reserves.” The person in charge said.
The relevant person in charge of the ZCE said that they will continue to maintain communication with pilot companies, track the progress of the “Commercial Storage Worry-Free” pilot project, conduct a systematic evaluation of the project effect, continue to improve the construction plan for the next year, and continue to integrate urea futures with the national fertilizer business. Effective combination of reserve policies to supportFertilizer industrySteady and rapid development.
(Source: China Securities Journal)
(Editor in charge: DF372)
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