China snack and frozen-food raw-material exposure to El Nino Report Interpretation

Overview

The report examines how a potentially record-strong 2026-27 El Nino could affect the principal raw materials used by Goldman Sachs' China snack and frozen-food coverage. Historical evidence points to the greatest vulnerability in imported nuts, more variable outcomes for sunflower seeds, and relatively contained company-level margin effects from konjac and surimi when operating measures offset commodity pressure.

Core views

Goldman Sachs extends its broader consumer-staples work on El Nino exposure by focusing on konjac, sunflower seeds, nuts and fish surimi. Its agricultural team forecasts the current El Nino to be the strongest on record. The report uses the Oceanic Nino Index, or ONI, which measures the three-month running average of sea-surface temperature anomalies in the equatorial Pacific's Nino 3.4 region. An event requires ONI above +0.5°C for five consecutive overlapping three-month periods; +1.5°C is strong and +2.0°C is very strong. The 2026-27 estimate is the multi-model median forecast from The Climate Brink, and the report notes that stronger events generally have their largest global effects during the Northern Hemisphere winter from December through February. Historical episodes show that the impact varies materially by input. Nuts, which are mainly imported, appear most exposed. Drought in Africa raised cashew costs by 2%-12% during 2024-25, and Chacha's nuts gross margin fell by 4.4-7.5 percentage points; nuts also recorded low gross margins during the 2016-17 period following the 2015-16 Super El Nino. The report nevertheless notes that easing drought conditions may eventually reduce cashew prices and that easier competitive conditions could improve the ability of nut producers to pass through costs. Sunflower seeds have produced mixed results because the timing and type of weather matter. During 2016-17, Chacha's sunflower-seed gross margin declined by less than 2 percentage points as costs were roughly flat. In contrast, excessive rainfall in Inner Mongolia in September 2024 increased mold incidence and reduced the availability of seeds meeting premium quality standards. Procurement costs rose, and Chacha's sunflower-seed gross margin declined by 5.0 percentage points in 2025. For the current season, however, channel checks indicate healthy supply and demand and favorable weather around the harvest regions. Procurement costs were still down 18% year on year in early September, although they had risen 4% month on month. Konjac production is sensitive to sustained heat, drought and moisture conditions, but covered companies have historically absorbed much of the input shock. Persistent hot and dry weather in China during 2024 reduced konjac planting area by 20% and pushed prices higher. Even so, Weilong and Yankershop posted relatively resilient margin outcomes through efficiency gains: their relevant margins changed by -1.7 and -2.4 percentage points year on year in 2024 and by -1.6 and +1.2 points in 2025, respectively. Yankershop also experienced less than a 1-point effect on konjac margins in 2017 despite a 14% year-on-year rise in costs. Goldman Sachs additionally sees new konjac and protein-based product innovation as a possible offset to cost pressure. Surimi presents a different historical lesson. Anjoy's gross margin contracted by 4.2 percentage points year on year in 2015, but the report attributes this mainly to an average-selling-price reduction intended to gain market share rather than to raw-material inflation; fish raw-material costs were favorable at the time. Current fish-cost indicators are mixed but moderating: US cod prices rose 12% month on month in August and were 18% above the prior year, down from 40% year-on-year growth in July. China fish prices remained comparatively stable at +1% year on year and -3% month on month in early September. Other current nut indicators also look manageable rather than uniformly inflationary. August US producer-price data showed almond prices down 6% year on year and flat month on month. Tree nuts including cashews were down 4% year on year, whereas pistachios were up 10%; both categories were flat from the previous month. The divergence reinforces the report's conclusion that exposure should be evaluated commodity by commodity rather than through a single El Nino assumption. Looking into 2027, Goldman Sachs considers its snack and frozen-food coverage less exposed than the broader staples universe to El Nino-driven inflation in sugar, palm oil and soybeans. Most covered companies have less than 10% of COGS tied to those inputs, compared with broader staples exposure ranges of 5%-30%, 6%-30% and 10%-21%, respectively. Ligao is the exception, with palm oil representing 30% of COGS. Potential pricing power in nuts and innovation in konjac and protein-based products may provide additional mitigation, but raw-material volatility remains the central uncertainty. The critical verification period is 4Q26 through early 2027. Sunflower seeds are harvested from September to October, konjac from October to December, and pistachios from late August to October, while Anjoy begins surimi procurement in October. These overlapping windows will reveal whether favorable current conditions persist and how much of any cost movement reaches company margins. The report also retains differentiated security views rather than applying one conclusion to every food company. Three Squirrels is Neutral with a Rmb15.3 12-month target based on 16x 2026E P/E. Anjoy A is Neutral with a Rmb92.0 target based on 19x 2026E EPS, while Anjoy H is Buy with an HK$86.0 target using a 15% discount to the A-share multiple, referencing the average three-month H/A discount of selected consumer stocks. Chacha Food is Buy with a Rmb21.5 target based on 16x 2026E P/E. Weilong is Buy with an HK$9.76 target based on 14x FY2027E P/E discounted back at 8.6%, and Yankershop is Buy with a Rmb56.0 target based on 18x FY2026E P/E.

Analysis framework

The analysts first define the expected El Nino's strength and timing, then compare weather, crop-yield, procurement-cost and gross-margin outcomes during earlier moderate-to-very-strong events. They next check current commodity prices and harvest conditions, evaluate each company's input mix and operating offsets, and identify the 4Q26 and early-2027 harvest and procurement windows that will test the thesis. Company price targets are separately derived using forward P/E multiples, with an H-share discount applied to Anjoy H.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Weather-to-margin transmission analysis

  The report traces El Nino-related heat, drought or rainfall through crop yield and quality, raw-material availability, procurement costs and, ultimately, company gross margins.

• Cycle and Business Conditions

  Historical El Nino cycle comparison

  Outcomes following the 2015-16 Super El Nino and the 2023-24 strong El Nino are used to assess the likely direction and magnitude of effects on nuts, sunflower seeds, konjac and surimi.

• Industry AnalysisSupply-demand framework

  Harvest-region supply and demand checks

  Weather, planting area, crop quality, harvest timing, inventories and channel checks are combined to determine whether each input market is likely to tighten or remain manageable.

• Valuation methodsP/E and PEG Valuation

  Forward P/E target-price valuation

  The report values Three Squirrels, Anjoy A, Chacha, Weilong and Yankershop using forward earnings multiples; Weilong's FY2027E value is discounted back at 8.6%, while Anjoy H applies a 15% discount to the A-share multiple.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Three Squirrels (300783.SZ)

  Covered snack company with nut-cost exposure; Neutral with a Rmb15.3 12-month target based on 16x 2026E P/E.

  Strengths

  Potentially easier competitive dynamics could improve pricing power in nuts.

  Weaknesses

  Imported nut costs have historically been vulnerable to drought and crop conditions.

  Comparison

  The report identifies nuts as more exposed to El Nino-related pressure than konjac.

  Risks

  Offline-channel revival initiatives, capacity ramp-up and raw-material prices may be better or worse than expected.

• Anjoy Foods Group A (603345.SS)

  Frozen-food and surimi exposure; Neutral with a Rmb92.0 12-month target based on 19x 2026E EPS.

  Strengths

  Current China fish prices were relatively stable, and the historical 2015 margin decline was mainly linked to an ASP reduction rather than raw-material inflation.

  Weaknesses

  Surimi procurement begins in October, leaving results exposed to the coming cost window.

  Comparison

  The A-share valuation multiple is the reference point for the Anjoy H-share target.

  Risks

  Frozen-meal growth, consumer preferences, raw-material costs, food safety and competitive pricing pressure.

• Anjoy Foods Group H (2648.HK)

  H-share exposure to the same frozen-food and surimi business; Buy with an HK$86.0 12-month target.

  Strengths

  The target reflects a 15% discount to the A-share multiple.

  Weaknesses

  The business remains exposed to the October surimi procurement period.

  Comparison

  The 15% discount references the average three-month H/A discount of selected consumer stocks.

  Risks

  Slower frozen-meal growth, changing consumer preferences, rising raw-material costs, food safety and intense industry competition.

• Chacha Food (002557.SZ)

  Direct exposure to sunflower seeds and nuts; Buy with a Rmb21.5 12-month target based on 16x 2026E P/E.

  Strengths

  Current sunflower-seed procurement costs remain 18% below the prior year, and harvest-region conditions are described as healthy.

  Weaknesses

  Cashew inflation and premium sunflower-seed shortages have previously caused substantial gross-margin declines.

  Comparison

  Its historical results illustrate the greater vulnerability of nuts and the weather-dependent nature of sunflower-seed margins.

  Risks

  Industry competition, raw-material costs and weaker-than-expected growth in emerging channels.

• Weilong Delicious Global Holdings (9985.HK)

  Konjac-related snack exposure; Buy with an HK$9.76 12-month target based on 14x FY2027E P/E discounted back at 8.6%.

  Strengths

  Efficiency gains helped contain margin pressure despite higher konjac prices, while new product innovation may offer an additional offset.

  Weaknesses

  Konjac planting and prices remain sensitive to persistent heat and drought.

  Comparison

  Konjac margin effects were more resilient than the historical pressure observed in nuts.

  Risks

  Competition, high channel-development expenses, slow expansion through discounters, convenience stores and mom-and-pop outlets, and unfavorable raw-material costs.

• Yankershop Food (002847.SZ)

  Konjac-related snack exposure; Buy with a Rmb56.0 12-month target based on 18x FY2026E P/E.

  Strengths

  Efficiency gains supported resilient margins, including a less-than-1-point effect in 2017 despite a 14% rise in konjac costs.

  Weaknesses

  Performance still depends on raw-material control and the development of snack-discount channels.

  Comparison

  The company's historical margin resilience supports the report's view that konjac cost increases need not translate one-for-one into earnings pressure.

  Risks

  More intense snack-industry competition, especially from private labels, slower discounter openings and higher raw-material costs.

Key data

• Cashew cost increase2%-12%Increase during 2024-25 amid drought in Africa
• Chacha nuts gross-margin decline4.4-7.5pptAssociated with higher cashew costs in 2024-25
• Chacha sunflower-seed gross-margin decline5.0ppt2025 decline after excessive September 2024 rainfall constrained premium-grade seeds
• China konjac planting-area change-20%2024 reduction caused by persistent hot and dry weather
• Weilong and Yankershop margin changes-1.7ppt/-2.4ppt in 2024; -1.6ppt/+1.2ppt in 2025Year-on-year changes despite higher konjac prices
• Historical Yankershop konjac cost and margin effect+14% cost; <1ppt margin effectYear-on-year cost increase and margin impact in 2017
• Almond prices-6% YoY; flat MoMAugust US PPI data
• Tree-nut and pistachio prices-4% YoY / +10% YoYTree nuts including cashews versus pistachios; both flat month on month
• Sunflower-seed procurement costs-18% YoY; +4% MoMEarly-September reading
• US cod prices+12% MoM; +18% YoYAugust; year-on-year growth slowed from 40% in July
• China fish prices+1% YoY; -3% MoMEarly-September reading
• Sugar, palm-oil and soybean exposure<10% of COGSMost covered snack and frozen-food companies; Ligao is the exception with palm oil at 30% of COGS
• Broader staples input-exposure ranges5%-30% / 6%-30% / 10%-21%Sugar, palm oil and soybeans, respectively

Impact & implications

The report argues that a strong El Nino should not be treated as a uniform earnings shock across China food companies. Imported nuts have the clearest historical cost and margin vulnerability, while sunflower-seed outcomes depend heavily on harvest-period rainfall and quality. Konjac processors have demonstrated meaningful operating offsets, and current fish indicators do not yet point to a broad surimi-cost shock. The decisive evidence will come from commodity prices and company procurement during the late-2026 harvest season.

Risks

• Raw-material prices could move sharply during the key 4Q26 harvest and procurement period, creating larger-than-expected cost headwinds or tailwinds.
• More intense competition could limit pricing power and increase promotional pressure across snack and frozen-food categories.
• Frozen-meal growth or snack-discounter expansion could be slower than expected.
• Consumer-preference changes could weaken demand for covered products.
• Offline-channel revival, emerging-channel growth and capacity ramp-up may differ materially from expectations.
• Food-safety incidents are an explicit risk for Anjoy.
• Weilong could incur high channel-development expenses or experience slower expansion through discounters, convenience stores and mom-and-pop outlets.

What to watch

• Track sunflower-seed harvesting from September to October and whether favorable weather and supply conditions continue.
• Monitor pistachio harvesting from late August to October and whether the current 10% year-on-year price increase persists.
• Watch konjac harvesting from October to December for changes in planting, yield, quality and prices.
• Follow Anjoy's surimi procurement beginning in October and the continuing moderation in US cod inflation.
• Assess whether nut producers gain pricing power and whether konjac or protein-based product innovation offsets input-cost pressure through early 2027.