Origin Agritech Ltd. (NASDAQ: SEED) shares leaped in early trading Thursday. The agriculture technology company today announced it has signed purchase agreements to sell two feedstock companies a total 50,000 metric tons of its nutritionally enhanced corn.
Origin Agritech's new, nutritionally enhanced corn reduces the need for expensive additives such as soybean meal for feedstock companies, and thus doubles their margins. As a result of this, Origin has gotten a lot of buzz in the industry and much inbound interest. Origin has been giving samples of the corn to potential feedstock customers so that they can validate the nutritional content of the corn. The corn has passed these tests and companies now are placing orders.
Since Origin's corn has such a positive impact for feedstock companies and since the company has no competition for this product, the company decided rather than just selling the seed, it would contract grow the corn to capture much higher share of the profitability of the finished product. The company is contract growing 50,000 metric tons of the corn in Xinjiang.
The feedstock companies have agreed to buy the corn at market prices at the time of delivery, plus a mark-up to reward the company for the added value of the corn. Based on current market prices for corn, the sale price could be around 3,000 RMB per metric ton or 150 million RMB in total.
The company is currently evaluating the impact of this purchase agreement on the company's financials and may soon update its guidance to reflect this new business.
SEED shares galloped $1.69, or 23.1%, to $8.99
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