CHINA'S INFLATION rose 8% in Q1, soaring to new 11-year highs in that quarter.
The soaring prices and a shortage of staples such as grain and wheat have driven the Chinese government to take action to increase the output of the farming sector.
Agriculture subsidies of Rmb 25.3 billion for 2008 were pledged by the government on 28 Mar, 36% more than for 2007.
China Farm Equipment’s combine harvesters and plough machines will get subsidies of Rmb 10,500 per machine, or a 50% increase.
The company expects greater equipment sales as mechanization is made more affordable to farmers.
2007 sales were Rmb 396 million. Net margins were 18%.
As much as 70% of China’s farmers still use traditional farming methods, suggesting vast market potential for farm equipment.
OSK-DMG’s Lee Shaun Tzen maintained the broker’s buy call on China Farm Equipment yesterday.
The broker has a target price of 73 cents for the stock, or 40% upside based on Wed’s close price of 52 cents.
Recognia charts signal stock may trend up to 17% in two months
China Farm Equipment shares rebounded from its historic low of 30.5 cents (20 Mar) on expectations of the government subsidies.
The stock was listed on SGX in Feb 2007 at 34.5 cents.
The farm equipment maker’s price chart is showing a head and shoulders bottom, considered a bullish indicator by chartists.
A head and shoulders bottom suggests a possible reversal of the current downtrend into a new up-trend.
China Farm’s resistance neckline line at 42 cents broke last week, confirming the head and shoulders pattern.
Charts are signaling an up-trend into the 61-65 cents range in the coming 70 days, according to Recognia’s automated program. 
Funds are flowing fast into commodities as low inventories of many industrial and agricultural raw materials are fueling soaring price levels.
Increasing demand for metals, fuel and food by booming economies such as China, Russia, India and Brazil much more than offset slowdown in North American demand.
”Commodity prices are set to rise for a very long time,” a portfolio investment manager from US$1.5 billion-fund US Global Investors told Bloomberg on Apr 9.
The UBS Bloomberg Constant Maturity Commodity Index has risen 19% year-to-date, versus a 7% decline in the Straits Times Index.
Along the same vein, global commodity investments rose more than 20% during 1Q08 to US$400 billion, according to Citigroup estimates.
Meanwhile, in equity markets, fund managers are raving over commodity-related plays such as farming or plantation stocks.
Agriculture stocks listed on SGX other than China Farm Equipment include China XLX Fertilizer, China's no.1 rabbit meat exporter China Kangda and animal drugs maker China Animal Healthcare.
Plantation stocks include Indofood Agri, Golden Agri-Resources, Wilmar International (palm oil) and GMG (rubber).
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