The trade war between China and the US is heating up in industry opinion this week. Sector-themed investment opportunities continue to ferment further in the trade war, and the trend is getting more intense. Following the Treasury Department's announcement on April 1 that the two sides continued to step up the implementation of the tariff relief decision on some imported goods from the US. On April 3, the US announced a list of Chinese goods to be subject to additional tariffs based on the results of the “301 investigation”, involving an amount of 50 billion US dollars. On April 4, the Chinese government resolutely counterattacked and proposed to impose 25% tariffs on 14 categories and 106 items of 50 billion US dollars originating in the US. The exact implementation and timing depends on the US. On April 6, US President Trump directed the Office of the United States Trade Representative to base the “301 investigation” ”, consider whether it is appropriate to impose tariffs on an additional $100 billion worth of goods imported from China. Judging how to proceed with the trade war needs to be based on the attitudes of both sides. America's attitude is “always tough and will never rest easy”, and China's attitude “never shows weakness and will stay with you until the end”. The attitude of both sides determines that this trade war is a protracted war. There is a possibility of “all-out war and damage both sides”, as well as the possibility of “continuing stalemate and eventual reconciliation,” but every possibility will prolong the duration of the trade war. As far as the performance of the secondary market is concerned, taxes on major agricultural products such as soybeans have not yet been implemented. The trade war has limited impact on the agricultural product spot market. It is mainly mainly focused on thematic investment opportunities. As the popularity of the trade war theme heats up further, the overall market situation in the agricultural sector is expected to be further catalyzed. In addition, the publication of the annual reports and quarterly reports of listed agricultural companies is mainly in late April. Currently, quarterly performance forecasts are frequently issued. It is recommended to focus on targets where the first quarter's performance exceeds expectations and performance growth is highly certain. Specifically, the pig breeding sector, which was the focus of attention in the early stages, was affected by the sharp drop in pig prices in the first quarter, and the overall market performance was weak. It is recommended to stick to the lead and increase allocation moderately at the bottom; the feed industry is constrained by passive downstream changes, concentration increases rapidly, the leaders have clearly benefited, and the performance growth is more certain. Pig farming: Pig prices rebounded slightly month-on-month, and may stop fluctuating in the short term. The average price of lean pork in the country this week was 10.49 yuan/kg, up 0.58% month-on-month. This week's pork food ratio was 5.19, down 0.08 month-on-month. Pork imports account for a very low proportion of domestic consumption. The trade war has had little impact on pig prices, yet market expectations continue to heat up. In line with sector valuations falling sharply from the previous period, once pig prices stabilize, the sector rebounds strongly, so it is recommended to keep an eye on it in the near future. There are two types of investment logics in the pig breeding sector. One is an overall opportunity for the cyclical industry. The decline in pig prices inhibits stock price performance and instead boosts the market; second, it is an opportunity for leading value revaluation brought about by accelerated large-scale changes in the industry. Under the pressure of environmental protection policies, the scale of the pig farming industry increases rapidly, industry leaders expand at the bottom of the industry, make up prices in volume, and increase market share at an accelerated rate. It can achieve high performance flexibility during the upward phase of the industry. It can achieve high performance flexibility during the downward phase of the current cycle, and is mistaken and undervalued by industry logic during the downward phase of the current cycle. As mentioned, we think This stage is a good time for pig breeding leaders to be deployed, and there is plenty of room for improvement in valuation. The main analysis of the industry cycle is now being carried out. In the short term, demand is weak after the year, the pig supply is sufficient, pig supply and demand are relaxed, and pig prices are facing downward pressure in the short term. Recently, however, there has been a narrowing trend in the decline in pig prices. The number of cows and pigs kept on the market is low, the efficiency of pig breeding is already below the cost line, making it more difficult for slaughter companies to collect pigs, and at this stage there is a seasonal correction in pig prices. There is limited room for pig prices to decline, and they are even expected to rebound in the short term. Looking at the larger cycle, effective supply continues to recover, and the cycle is slowly declining. Effective supply is gradually picking up due to the impact of large-scale farming on sows and the increase in the weight of released pigs. Currently, the pig cycle is still declining. However, due to environmental policies and the slowdown in pork imports, supply recovery has been slow. According to pig storage data from 400 monitoring counties of the Ministry of Agriculture, pig storage in February 2018 fell 1.5% month-on-month, 4.7% year-on-year, and sow breeding fell 0.5% month-on-month, down 5.0% year-on-year; according to Ministry of Agriculture data, 662,000 tons of pork were imported in the first half of 2017, a decrease of 13.1% compared to the same period last year. It is worth noting that despite the year-on-year decrease in imported pork prices, domestic and foreign pork price differences still exist, and pork imports will continue to exist. Taken together, the current pig cycle trend is flat and the span is large, and there is limited room for pig prices to continue to fall. The second type of investment logic applies to the current stage. It is recommended to focus on leading companies in the industry with relatively low valuations and maintaining the progress of production capacity expansion. Poultry farming: Prices in the poultry chain adjusted month-on-month. This week, the purchase price of chicken in Yantai, Shandong was 3.67 yuan/kg, down 2.13% from the previous month, and the factory price of chicken seedlings was 2.30 yuan/feather, down 26.98% from the previous month. Looking at the medium to long term, the logic of introducing an increase in the off-season poultry chain has not changed. The white feather broiler boom will gradually pay off in the later stages, and the chicken price boom will rise or remain for a long time. In terms of the introduction and storage of ancestral chickens, in 2015, only about 630,000 sets of ancestral chickens were introduced in 2016 due to customs clearance events caused by foreign diseases. In 2017, H5 subtype diseases ravaged the world. From January to January 2017, China introduced a total of about 128,000 sets from Spain and Poland. Currently, Poland has been closed due to recurrent diseases, and New Zealand is still undergoing technical customs clearance (involving amendments to inspection and quarantine regulations). According to statistics from the China White Feather Broiler Federation, as of the first half of 2017, only about 200,000 sets were introduced. Affected by forced feather exchange, ancestral chicken stocks were slightly higher than the number introduced, but it had little effect on the egg production of ancestral chickens. In terms of storing chicken on behalf of parents, according to data from the China Animal Husbandry Association, as of the beginning of October 2017, some enterprises across the country kept about 14.3 million sets for their parents, down 4.7% from the beginning of September. We expect there will be a substantial shortage on the broiler supply side, the cycle span of the poultry chain will increase, and the inflection point of the economy has reached. Feed: Affected by large-scale farming, industry integration has accelerated, and leaders in integrated farming have benefited. On the one hand, with the continuous recovery of production capacity in the pig breeding industry and the further acceleration of the large-scale process, the demand for feed in the breeding industry tends to be service-dependent and high-end, forcing the integration of the feed industry to accelerate and low-end production capacity is gradually being eliminated. Industry leaders rely on advantages such as products and services to occupy more share, and performance is more flexible as breeding stocks recover. However, it should be noted that large-scale farmers are also gradually becoming capable of supplying feed, and the threshold for the feed industry is still low. In the long run, the profitability of enterprises extending the industrial chain layout in the downstream aquaculture industry will steadily increase, their resilience to risk will be strengthened, and competitive advantages will gradually become apparent. Therefore, we believe that the feed industry will show a trend of integrated farming. On the other hand, raw material costs are still facing downward pressure to increase profit margins. This week, the spot price of soybeans was 3,500.00 yuan/ton, up 0.80% from the previous month, the spot price of soybean meal was 3305.76 yuan/ton, up 3.54% from the previous month, and the average spot price of corn was 1898.75 yuan/ton, down 2.17% from the previous month. In terms of corn, although the gap between supply and demand is gradually widening due to the reduction in planting area and the increase in demand for downstream processing, stocks of corn in China are still high, and the process of removing stocks will take some time. It is expected that domestic corn prices will still face downward pressure in the short to medium term. In terms of soybeans, the USDA3 monthly soybean supply and demand report predicts that the 2017/18 soybean yield in the US will be 49.1 bushels per acre, which is the same as the previous month's forecast, and the 2017/18 yield can be basically determined. According to customs statistics, in February 2018, China imported 5.424 million tons of soybeans, down 2.09% from the same period last year. Due to abundant global soybean production in 2018, supply and demand remain relaxed, and soybean prices will still face downward pressure in the next year. The feed industry will benefit from the continued decline in raw material costs, and profitability is expected to continue to rise. It is recommended to focus on leading feed companies that reduce the risk of performance fluctuations and increase profitability due to the acceleration of the integrated breeding process. Sugar industry: Sugar prices fell month-on-month. The spot price of sugar in Liuzhou this week was 5,770 yuan/ton, down 0.35% from the previous month. Judging the trend of sugar prices at home and abroad, we focus on two indicators: the gap between supply and demand and the ratio of inventory to sales. In terms of international raw sugar, we are currently in the inventory removal cycle. Although the USDA estimates that there will be oversupply during the 17/18 season, sugar stocks will continue to decline. It is expected that the sales ratio of sugar depots will drop to 22.74% during the 17/18 pressing season. We judge that the declining stock sales ratio over the years will provide strong support for international raw sugar prices. In terms of domestic sugar prices, the USDA expects China's sugar gap to reach about 3.3 million tons in 2018, and the inventory sales ratio will drop to 47.25% from 60.7% in 2016. Considering, on the one hand, that the area under sugar cane cultivation is basically stable in the future, the yield and sugar production rate will increase steadily, and raw sugar imports will be drastically reduced under the premise of tariff policy protection. On the other hand, sugar consumption is expected to continue to grow steadily as the use of alternative starch sugar becomes increasingly saturated. Combined with the bottom support of domestic sugar prices above, it is expected to rise steadily in the medium to long term. Fisheries: Prices declined month-on-month, and the seafood industry maintained its prosperity. The bulk price of sea cucumbers this week was 106 yuan/kg, which is the same as the previous month. The current unit prices for abalone, scallops, and prawns are 140 yuan, 8 yuan, and 180 yuan per kilogram, respectively. Despite a recent correction in participation prices, the entire seafood industry is still booming due to the continued recovery in demand and the supply side continues to shrink due to capacity restructuring. Before 2011, sea cucumber products focused on the “luxury food” concept, which set off a boom in the high-end consumer market. The gross profit and growth rate of major sea cucumber farming and processing companies reached 66% and 64% respectively. As manufacturers continued to join, leading to overcapacity in the industry and the introduction of consumption restriction policies, sea cucumber prices began to decline rapidly, falling rapidly from a high of 200 yuan/kg in 2011 to 80 yuan/kg in the first half of 2016. The sea cucumber market continued to lose capacity, and the industry began to pick up. Upward period. We expect the industry to continue to improve, so we recommend focusing on Haodang and Oriental Ocean. This issue's “Excellent Promotion” portfolio: Haodang (600467) and Yasheng Group (600108).