Corn bears the brunt as the drought map expands, putting granaries in many regions to a major test
Since July, Henan, Shaanxi, Inner Mongolia and other places have suffered severe drought one after another. Currently at the critical stage of autumn grain production, how is grain production faring under this "roasting" test? Analysts interviewed by the China Securities Journal pointed out that, from a nationwide perspective, the current
Since July, Henan, Shaanxi, Inner Mongolia and other places have suffered severe drought one after another. Currently at the critical stage of autumn grain production, how is grain production faring under this "roasting" test? Analysts interviewed by the China Securities Journal pointed out that, from a nationwide perspective, the current drought weather has a limited impact on grain production, though some local areas have suffered relatively severe damage. Among them, corn is the grain variety most affected by the drought, while soybeans and peanuts have also seen some yield reduction.
As in previous years, the expectation of grain yield reduction brought by drought has ignited the enthusiasm of funds for speculation. Recently, the futures prices of agricultural products such as corn and soybeans have risen one after another. Among them, the corn index has cumulatively risen 3.17% since July 16, the No. 1 soybean index has cumulatively risen 5.91% since July 14, and even the usually unpopular Zhengzhou wheat index has risen nearly 6% since July. Looking ahead to the market, analysts believe that if precipitation in major grain-producing areas continues to be below normal in mid-to-late August, as the expectation of grain yield reduction further heats up, the prices of related agricultural products may continue to rise in the future. However, given the market's earlier speculation over the drought, if precipitation occurs later, related futures contracts may also plummet.
Severe damage in some local areas
"The current overall drought situation is relatively mild, but drinking water difficulties in some local areas are prominent. Affected by high temperatures and little rain, high-temperature summer drought has occurred in parts of the Jianghuai, Huanghuai, North China and Northwest regions. The recent rainfall process is very favorable for alleviating the drought in southern Southwest China, southeastern Northwest China, and parts of the Jianghuai and Huanghuai regions. The drought in Jiangsu, Anhui, Shaanxi and other provinces has basically been relieved, while drought has emerged and developed somewhat in western Northeast China." Shu Qingpeng, inspector of the State Flood Control and Drought Relief Headquarters, said at a press conference recently that as of August 12, the drought-affected area of crops nationwide was 65.89 million mu, with 2.35 million people and 2.54 million large livestock having difficulty accessing drinking water due to drought. The main drought indicators nationwide, such as the drought-affected area of crops and the number of people and livestock with drinking water difficulties due to drought, were all lower than the multi-year average for the same period, but drinking water difficulties in some local areas were prominent.
From the perspective of local areas, the drought weather has caused a relatively severe impact on grain production. According to the results of an in-depth survey in Henan by China Securities Journal reporters, canals in some areas of Henan have dried up, large areas of cornfields have already lodged, most corn plants have tasseled but not filled out kernels, and those that did fill kernels produced shriveled and scant grain. Some corn cobs with kernels have even suffered pest damage.
Liu Guoliang, an agricultural product researcher at SDIC Zhonggu Futures, pointed out that the yield reduction caused by drought weather in some areas of North China is now a foregone conclusion, especially in some local areas of Henan Province. If precipitation continues to be below normal later, the extent of the yield reduction will further increase; while in Liaoning, Jilin, Inner Mongolia and other places, the damage to crops from drought weather is still recoverable. If timely precipitation occurs later, the Northeast region can still achieve a bumper harvest.
However, Meng Jinhui, a researcher at COFCO Futures, told reporters that the current drought weather may involve an element of speculation, and the overall bumper autumn grain situation may not be greatly affected. Traditional "granary" provinces such as Henan have relatively developed irrigated agriculture, and have gained experience fighting drought disasters many times in the past 10 years. Therefore, the current impact of the drought on autumn grain production may be smaller than the market expects.
Corn bears the brunt
Analysts generally believe that corn will be the grain variety most affected by the drought. Liu Guoliang said that corn yield reduction in North China may reach 5 million tons, accounting for about 2.5% of the national total output. If precipitation continues to be below normal later, the yield reduction may be even greater.
"It is understood that the drought weather has also led to the emergence of spider mites and other pests and diseases in some areas. The drought weather in Henan may cause corn output to fall by 10% to 15%." Pan Yuzhu, an agricultural product analyst at Changjiang Futures, told reporters that for corn, spot prices are currently continuing to rise, mainly because most of last year's corn was purchased into state reserves, while last year's breeding industry was sluggish, processing enterprises had insufficient inventories, leading to relatively strong purchasing willingness among enterprises recently.
According to industry insiders, there is currently a certain short-term supply gap in the corn spot market, but in the medium term, China's corn will still be in oversupply in the 2014/2015 year. Even if corn output declines to some extent in 2014, given that the state still holds more than 70 million tons of state reserve inventories, domestic corn prices will not face too much upward pressure. Therefore, the drought actually mainly affects the futures market and has given funds an opportunity to speculate.
It is worth noting that the drought has also affected the growth situation of some soybean crops. Liu Guoliang pointed out that Anhui and Henan are major soybean-producing areas, with yield reductions reaching 500,000 to 700,000 tons, accounting for about 5% of the national total output. Although soybean output in 2014 is highly likely to decline, starting this year, the temporary reserve price-support policy for soybeans has been changed to a target price direct subsidy policy. After new-season soybeans come to market in 2014, the market is very likely to see oversupply, and soybean prices may fall sharply.
At the same time, peanuts have also been affected by the drought. "It is understood that the peanut yield reduction in North China this year may exceed that of corn." Liu Guoliang said.
As for varieties such as wheat and rice, analysts believe that these varieties had already been harvested earlier, so they will not be affected by this drought. But it is worth noting that mid-to-late rice is currently at the tasseling and sowing stage, and the potential impact needs to be observed.
The possibility of continuous summer-autumn drought cannot be ruled out
The Beginning of Autumn solar term has now passed, and the time for the autumn grain harvest is gradually approaching. Information from the Ministry of Water Resources shows that in mid-to-late August, precipitation in southern Northeast China, northern North China, Huanghuai and Jianghuai will still be below normal, with some local areas more than 30% below normal. The drought in some parts of Huanghuai may continue or develop somewhat, and the possibility of a continuous summer-autumn drought cannot be ruled out.
"If precipitation in major grain-producing areas continues to be below normal in mid-to-late August, then grain will definitely see a clear yield reduction, and grain futures varieties may continue to rise in the future. But given the market's earlier speculation over the drought, if precipitation occurs later, related futures contracts may plummet." Liu Guoliang said that crop output in the Northeast production areas is usually relatively stable, and the current degree of drought is also much smaller than in North China.
Data recently released by the General Administration of Customs of China show that in the first 7 months of this year, China cumulatively imported 11.34 million tons of cereals and cereal flour, an increase of 80.7% over the same period last year. Will the expectation of grain yield reduction prompt a sharp increase in import volume?
In response, Meng Jinhui pointed out that the main reason for China's grain imports at present is not a gap in domestic grain supply, but rather that the state purchasing policy protects farmers' income growth, though it also makes the prices of domestic rice, wheat and corn higher than those on the international market.
"If corn output only declines by within 15%, the possibility of increased imports is very small. The state still has large reserves at present and can meet market demand by increasing reserve auctions, while also reducing storage costs." Liu Guoliang believes that in terms of soybeans, because domestic soybeans are mainly used for food, while non-GMO food-grade soybeans are basically unavailable internationally, even if domestic soybean output declines, soybean imports will not be significantly affected.
As in previous years, the expectation of grain yield reduction brought by drought has ignited the enthusiasm of funds for speculation. Recently, the futures prices of agricultural products such as corn and soybeans have risen one after another. Among them, the corn index has cumulatively risen 3.17% since July 16, the No. 1 soybean index has cumulatively risen 5.91% since July 14, and even the usually unpopular Zhengzhou wheat index has risen nearly 6% since July. Looking ahead to the market, analysts believe that if precipitation in major grain-producing areas continues to be below normal in mid-to-late August, as the expectation of grain yield reduction further heats up, the prices of related agricultural products may continue to rise in the future. However, given the market's earlier speculation over the drought, if precipitation occurs later, related futures contracts may also plummet.
Severe damage in some local areas
"The current overall drought situation is relatively mild, but drinking water difficulties in some local areas are prominent. Affected by high temperatures and little rain, high-temperature summer drought has occurred in parts of the Jianghuai, Huanghuai, North China and Northwest regions. The recent rainfall process is very favorable for alleviating the drought in southern Southwest China, southeastern Northwest China, and parts of the Jianghuai and Huanghuai regions. The drought in Jiangsu, Anhui, Shaanxi and other provinces has basically been relieved, while drought has emerged and developed somewhat in western Northeast China." Shu Qingpeng, inspector of the State Flood Control and Drought Relief Headquarters, said at a press conference recently that as of August 12, the drought-affected area of crops nationwide was 65.89 million mu, with 2.35 million people and 2.54 million large livestock having difficulty accessing drinking water due to drought. The main drought indicators nationwide, such as the drought-affected area of crops and the number of people and livestock with drinking water difficulties due to drought, were all lower than the multi-year average for the same period, but drinking water difficulties in some local areas were prominent.
From the perspective of local areas, the drought weather has caused a relatively severe impact on grain production. According to the results of an in-depth survey in Henan by China Securities Journal reporters, canals in some areas of Henan have dried up, large areas of cornfields have already lodged, most corn plants have tasseled but not filled out kernels, and those that did fill kernels produced shriveled and scant grain. Some corn cobs with kernels have even suffered pest damage.
Liu Guoliang, an agricultural product researcher at SDIC Zhonggu Futures, pointed out that the yield reduction caused by drought weather in some areas of North China is now a foregone conclusion, especially in some local areas of Henan Province. If precipitation continues to be below normal later, the extent of the yield reduction will further increase; while in Liaoning, Jilin, Inner Mongolia and other places, the damage to crops from drought weather is still recoverable. If timely precipitation occurs later, the Northeast region can still achieve a bumper harvest.
However, Meng Jinhui, a researcher at COFCO Futures, told reporters that the current drought weather may involve an element of speculation, and the overall bumper autumn grain situation may not be greatly affected. Traditional "granary" provinces such as Henan have relatively developed irrigated agriculture, and have gained experience fighting drought disasters many times in the past 10 years. Therefore, the current impact of the drought on autumn grain production may be smaller than the market expects.
Corn bears the brunt
Analysts generally believe that corn will be the grain variety most affected by the drought. Liu Guoliang said that corn yield reduction in North China may reach 5 million tons, accounting for about 2.5% of the national total output. If precipitation continues to be below normal later, the yield reduction may be even greater.
"It is understood that the drought weather has also led to the emergence of spider mites and other pests and diseases in some areas. The drought weather in Henan may cause corn output to fall by 10% to 15%." Pan Yuzhu, an agricultural product analyst at Changjiang Futures, told reporters that for corn, spot prices are currently continuing to rise, mainly because most of last year's corn was purchased into state reserves, while last year's breeding industry was sluggish, processing enterprises had insufficient inventories, leading to relatively strong purchasing willingness among enterprises recently.
According to industry insiders, there is currently a certain short-term supply gap in the corn spot market, but in the medium term, China's corn will still be in oversupply in the 2014/2015 year. Even if corn output declines to some extent in 2014, given that the state still holds more than 70 million tons of state reserve inventories, domestic corn prices will not face too much upward pressure. Therefore, the drought actually mainly affects the futures market and has given funds an opportunity to speculate.
It is worth noting that the drought has also affected the growth situation of some soybean crops. Liu Guoliang pointed out that Anhui and Henan are major soybean-producing areas, with yield reductions reaching 500,000 to 700,000 tons, accounting for about 5% of the national total output. Although soybean output in 2014 is highly likely to decline, starting this year, the temporary reserve price-support policy for soybeans has been changed to a target price direct subsidy policy. After new-season soybeans come to market in 2014, the market is very likely to see oversupply, and soybean prices may fall sharply.
At the same time, peanuts have also been affected by the drought. "It is understood that the peanut yield reduction in North China this year may exceed that of corn." Liu Guoliang said.
As for varieties such as wheat and rice, analysts believe that these varieties had already been harvested earlier, so they will not be affected by this drought. But it is worth noting that mid-to-late rice is currently at the tasseling and sowing stage, and the potential impact needs to be observed.
The possibility of continuous summer-autumn drought cannot be ruled out
The Beginning of Autumn solar term has now passed, and the time for the autumn grain harvest is gradually approaching. Information from the Ministry of Water Resources shows that in mid-to-late August, precipitation in southern Northeast China, northern North China, Huanghuai and Jianghuai will still be below normal, with some local areas more than 30% below normal. The drought in some parts of Huanghuai may continue or develop somewhat, and the possibility of a continuous summer-autumn drought cannot be ruled out.
"If precipitation in major grain-producing areas continues to be below normal in mid-to-late August, then grain will definitely see a clear yield reduction, and grain futures varieties may continue to rise in the future. But given the market's earlier speculation over the drought, if precipitation occurs later, related futures contracts may plummet." Liu Guoliang said that crop output in the Northeast production areas is usually relatively stable, and the current degree of drought is also much smaller than in North China.
Data recently released by the General Administration of Customs of China show that in the first 7 months of this year, China cumulatively imported 11.34 million tons of cereals and cereal flour, an increase of 80.7% over the same period last year. Will the expectation of grain yield reduction prompt a sharp increase in import volume?
In response, Meng Jinhui pointed out that the main reason for China's grain imports at present is not a gap in domestic grain supply, but rather that the state purchasing policy protects farmers' income growth, though it also makes the prices of domestic rice, wheat and corn higher than those on the international market.
"If corn output only declines by within 15%, the possibility of increased imports is very small. The state still has large reserves at present and can meet market demand by increasing reserve auctions, while also reducing storage costs." Liu Guoliang believes that in terms of soybeans, because domestic soybeans are mainly used for food, while non-GMO food-grade soybeans are basically unavailable internationally, even if domestic soybean output declines, soybean imports will not be significantly affected.