Oil price transmission leads to rising agricultural product prices, Guannong Shares hit the daily limit

(Source: 财闻)

          If disruptions in shipping become normalized in the industry, global fertilizer input supply may decline by 30% to 50%.            

On March 25, A-share agricultural stocks surged higher in the afternoon; China Agricultural Holdings (冠农股份) (600251.SH) hit the daily limit. Fenglin Group (丰林集团) (601996.SH), Agricultural Development Seed Industry (农发种业) (600313.SH), Saishai Co., Ltd. (新赛股份) (600540.SH), Yatong Co., Ltd. (亚通股份) (600692.SH), and Xinong Development (新农开发) (600359.SH) led the gains.

In terms of news, shipping disruptions through the Strait of Hormuz have tightened the global fertilizer supply chain, triggering market concerns about food production costs and supply. Currently, ships carrying approximately 980k tons of fertilizer are stranded in the Persian Gulf region. About one-third of the world’s seaborne fertilizer relies on this route. If shipping disruptions become normalized, institutional analysis suggests global fertilizer input supply could decrease by 30% to 50%.

Fangzheng Securities said there is a strong link between crude oil prices and agricultural product prices. On the one hand, higher crude oil prices will raise agricultural production costs through the cost effect, including costs for agricultural machinery, chemical products, and transportation. On the other hand, growth in demand for biofuels will also push up raw material prices such as corn. This transmission mechanism will ultimately be reflected in higher prices of agricultural input products, further reinforcing the valuation of the fertilizer sector.

A research report from Guotou Securities pointed out that recently, the linkage between agricultural product prices and crude oil prices has strengthened. Geopolitical conflicts driving up oil prices will indirectly raise costs for agricultural production inputs such as fertilizers and pesticides, while also increasing the substitution profits for fuel ethanol and biodiesel, thereby boosting industrial demand for agricultural products such as corn, soybeans, and palm oil. Over the past two weeks, spot prices for corn, wheat, and soybeans have all been trending upward, and the logic behind rising agricultural product prices has continued to strengthen.

In its latest research report, CICC noted that in the second half of China’s agriculture and animal husbandry industry, it is expected to shift from a game of competition within domestic stock markets toward the reconstruction of global value chains. China’s agriculture and animal husbandry industry leaders that have emerged after being tested by fierce competition are now exporting China’s solutions overseas, leveraging extreme cost efficiency and领先ing technologies. They are transforming production “lowlands” in Asia, Africa, and Latin America into high-value regions, outlining a second growth engine with high growth potential.

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