Severe Drought Hits Multiple Regions, Rising Agricultural Prices May Benefit Grain Companies

It was learned from the consultation meeting recently held by the State Flood Control and Drought Relief Headquarters that since the beginning of summer, precipitation has been below normal in the northwest, north China, the Huang-Huai region, the upper and middle reaches of the Yangtze River, and parts of the southwest, with severe drought occurring in some provinces and autonomous regions.

Specifically, on July 28, Henan and Shaanxi provinces both activated a Level III drought relief emergency response, with Henan Province experiencing its most severe drought in 63 years. In addition, severe drought has also occurred in the Huaibei area of Anhui Province, which has already mobilized more than 300,000 people for drought relief.

The latest information released by the Ministry of Agriculture shows that corn is about to enter the critical period of tasseling and silking, and the continuously worsening drought will adversely affect the growth, development and yield formation of corn and other autumn grain crops.

Previously, the Ministry of Agriculture had issued a document stating that a moderate-or-stronger El Nino phenomenon may occur this year. The successive issuance of drought relief emergency responses by Henan and Shaanxi also means that the probability of El Nino occurring is growing.

According to international statistics, when El Nino occurs, it will cause a reduction of about 2% in the world's four major crops: corn, spring wheat, winter wheat and rice. The Ministry of Agriculture said that El Nino will be unfavorable to the yield formation of middle and late rice in the south and autumn grain in the north, making the task of fighting disasters to secure a bumper harvest arduous. Henan Province has long been known as “China's granary,” and the impact of drought and El Nino climate may have a major effect on China's grain production for the whole year.

In the short term, drought warnings may drive agricultural prices higher, and listed companies engaged in grain production such as corn, wheat and rice are expected to benefit. Among A-share companies, related grain enterprises such as Dunhuang Seed, Shennong Dafeng, Wanxiang Denong and Dabeinong are worth watching.