In the case of huge losses in the first half of 2022, COFCO Jiakang will continue to lose money in the third quarter. Eye-popping. What caused the huge losses of COFCO Jiajiakang when the pork cycle turned to prosperity? its futures business.
Regarding the futures business, COFCO Jiajiakang explained that the company smoothes the pork cycle through futures hedging business. This sounds wonderful. But reality is often cruel. A lot of things, when you do it, you forget your original intention.
Some time ago, Erma wrote an article about why a large number of real estate companies came to the brink of bankruptcy. In fact, it is not that these companies have come to the brink of bankruptcy, but that many of them have been substantially bankrupt. The core reason for this is that these companies, or this industry, have turned a manufacturing industry with a golden business model into a financial industry. Hoarding a large amount of land reserves is equivalent to betting on the futures of rising land prices. On this point, Erma explains. Real estate companies use their profits over the years and the money they have raised through various financing means to buy and hoard land. By checking the reports of real estate companies, it can be found that the land they hoard is much higher than the development demand of the year. Real estate companies often hoard land that can be developed for 3-5 years. When the real estate industry enters a downward cycle, the sell-through rate decreases. It may take more than 5 years for these land reserves to be digested.
In the real estate down cycle, housing prices and land prices began to decline, and the high-priced land that occupied all the funds of the real estate company became the poison that led to the bankruptcy of the real estate company.
This is how the transformation of the manufacturing industry into the financial industry is harmful to the real estate industry, and it can even be said to destroy it.
Let’s talk about COFCO Jiakang. Why did investors choose Liangjia Jiakang? The core reason is one. Backed by COFCO Group, low cost of raw materials and low financing costs, under the blessing of these factors, COFCO Jiajiakang is more competitive than its peers, and if it persists for a long time, it can achieve steady growth.
Investors value the advantages of COFCO Breeding, not the ability to do futures. It is self-consistent to say that COFCO has advantages in breeding. And COFCO Jiajiakang believes that it has the ability to do a good job in futures, which is not recognized by the market. And often those who drown are so-called swimmers.
At the third-quarter performance exchange meeting, the meaning expressed by the representatives of the brokerage companies has been very clear. The futures business reduces the certainty of COFCO Jiajiakang, which the capital market considers to be a minus.
Maybe Jiajiakang thinks that he still has some ability in futures. On the one hand, this ability is more of a self-awareness. In addition, if this capability or business leads to concerns in the capital market. Reluctance to value the company. So, is COFCO Jiakang considering returning to its original aspiration and raising pigs in a down-to-earth way? After all, the futures business is just a icing on the cake, if a non-essential business becomes a business that scares investors. Does this go against COFCO’s original intention?
In addition, Erma mentioned earlier that many things were done and they forgot their original intentions. In terms of COFCO’s losses in the first three quarters, COFCO’s futures business is not as simple as hedging. It is likely that some of them are simply making trend judgments, which leads to huge losses.
In addition, when the pig cycle has been running at a low level for a long time, it is against basic common sense to continue to judge that the price of pork will remain at a low level in the next ten months, or it is a high-risk behavior. The management of COFCO considered that the price of pigs was low at the time, so it is a logical view to do a lot of hedging at the low level, either a cognitive error or a shirk of responsibility.
On the other hand, if the price of pigs is at a high level for a long time, then hedging at a high level to lock in profits is the correct approach.
Therefore, I do not believe that Jiajiakang has the ability to do a good job in futures.
It is a difficult business model for a manufacturing company to do finance. Why can’t we consider simplifying the business model and do a solid job in the main business? In this way, shareholders can rest assured and the company can concentrate.
The above is the suggestion of a small and micro shareholder of COFCO Jiajiakang.
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