2, from the driving effect of rising food prices, crude oil prices rise > the outbreak of local wars> extreme weather and production reduction agreements, of which the first two points are the core, and often appear at the same time. Behind each food crisis is the intertwining of multiple supply shocks, and the complexity of the driving factors determines the slope and height of the previous food price increases, such as the oil crisis in the early 1970s and extreme weather that led to a short-term increase of more than 130% in food prices, and the outbreak of the Iraq War in 2003 caused food prices to rise by more than 75%.
3. Judging from the performance of US stocks during the previous food crises, the reduction in grain production and the damage to the supply chain caused by unexpected wars or extreme weather often lead to increased volatility in the broader market, but at the same time, the necessary consumer sectors such as agriculture have significant excess gains during this period, such as the Wars in North Korea and Iraq and the agricultural sector in extreme weather in 2010 rose by more than 50%. Because the rise in crude oil prices often forms a positive transmission of grain prices, in addition to the mandatory consumption leading the market during the previous food crisis, the energy sector can also achieve better relative returns, such as energy stocks rose by more than 140% during the second oil crisis.
4, the current round of grain price increases began in 2020 since the extreme climate impact, the Federal Reserve's new round of monetary easing has also played a role in fueling the waves, the current two-year increase in grain prices has reached 109.80%, the range is second only to the food crisis in the 70s, the current round of food price increases are also due to the epidemic, war and extreme weather triple factors superimposed caused by food production and supply chain damage, this year's global cereal supply and demand forecast is still in a tight balance pattern, The situation in Russia and Ukraine is a key factor in determining the current trend of food prices, and future extreme weather will also exacerbate uncertainty on the supply side.
5. The energy and agricultural sectors that have benefited from the upward inflation of the US stock market this year have performed superiorly, and the utilities and compulsory consumption with strong anti-inflation attributes have also had certain relative gains. Mapped to A-shares, in the context of the gradual fermentation of the global food crisis, agriculture and necessary consumption-related fields are the phased direction of follow-up A-shares, and the market style is expected to achieve a switch from cycle to consumption. From the perspective of catalysts, the current round of shanghai epidemic will gradually enter the final stage, the biggest impact on consumption is about to pass, expanding domestic demand and boosting consumption will be the main focus of the next stage of policy steady growth. It is recommended to focus on the necessary consumption that is fully adjusted and benefits from the marginal improvement of the epidemic, as well as agriculture, forestry, animal husbandry and fisheries that benefit from rising product prices and rising inflation.
summary
1. Taking the CRB food spot index as a reference, there have been six sharp increases in food prices due to supply shortages since World War II, starting in 1949, 1973, 1978, 1994, 2000 and 2010. Under the influence of extreme weather since 2020, global food prices have entered a period of rapid rise, with the CRB food spot index as a reference, with a two-year increase of 109.80%. Under the intertwining of multiple supply shocks, the current inflection point of food prices has not yet appeared, and the subsequent inflationary pressures are constantly increasing. Looking back at history, since World War II, there have been six typical sharp increases in food prices caused by supply factors, which occurred from December 1949 to February 1951, November 1972 to November 1974, January 1978 to October 1980, November 1994 to July 1996, August 2000 to March 2004 and June 2010 to April 2011, of which the driving factors behind the increase in grain prices can be roughly divided into three categories. They are war-driven, oil-price-driven, and food production cuts.
2, from the driving effect of rising food prices, crude oil prices rise > the outbreak of local wars> extreme weather and production reduction agreements, of which the first two points are the core, and often appear at the same time. Behind each food crisis is the intertwining of multiple supply shocks, and the complexity of the driving factors determines the slope and height of the previous food price increases, such as the oil crisis in the early 1970s and extreme weather that led to a short-term increase of more than 130% in food prices, and the outbreak of the Iraq War in 2003 caused food prices to rise by more than 75%. Specifically, looking at the main reasons for the rise in grain in the past, the two times driven by the war, the main international agricultural products began to rise in 1949, until 1951, and the mismatch between supply and demand of agricultural products caused by the Korean War was the main reason for this price surge; 2000-2004 The CRB Food Spot Index rose by 75.49%, the Fed's loose monetary policy opened the first wave of food prices, followed by the outbreak of the Iraq War led to a second wave of food prices; the oil crisis was driven by the two, the early 70s mainly due to the double impact of natural disasters + oil crises, and the late 70s mainly due to the cost increase caused by the oil crisis. Of the two major increases in world food prices from 1994 to 1996, mainly due to the reduction of food export subsidies brought about by agricultural agreements and the reduction in global food production; the sharp rise in food prices from 2010 to 2011 was mainly caused by large-scale global food production cuts caused by extreme weather, and global easing liquidity was also one of the factors fueling food prices under the Federal Reserve's quantitative easing policy.
3. Judging from the performance of US stocks during the previous food crises, the reduction in grain production and the damage to the supply chain caused by unexpected wars or extreme weather often lead to increased volatility in the broader market, but at the same time, the necessary consumer sectors such as agriculture have significant excess gains during this period, such as the Wars in North Korea and Iraq and the agricultural sector in extreme weather in 2010 rose by more than 50%. Because the rise in crude oil prices often forms a positive transmission of grain prices, in addition to the mandatory consumption leading the market during the previous food crisis, the energy sector can also achieve better relative returns, such as energy stocks rose by more than 140% during the second oil crisis. Three of the food price increases caused by supply shocks have seen significant over-benefits in the agricultural sector during the Korean War, the Iraq War, and the 2010 extreme weather cuts, while essential consumption has performed well during the Iraq War and the Agricultural Agreement. In addition, the rise in crude oil prices tends to transmit to food prices, so energy stocks have also benefited from the logic of price increases during the previous grain price increases. It is worth noting that food prices usually lead to a significant rise in inflation, so we also need to be wary of whether inflation is reasonable and controllable, the market focus often turns to the strength and effect of the policy taken by the Federal Reserve in response to inflation during this period, so the US stock market usually shows increased volatility and divergence in this period, once there is a us policy failure in the 70s, economic stagnation and other signs, the US stock market has entered the "lost decade", the allocation of large assets is far more important than the allocation of the US stock industry.
4. The energy and agricultural sectors that have benefited from the upward inflation of the US stock market this year have performed superiorly, and the public utilities and mandatory consumption with strong anti-inflation attributes have also had certain relative gains. Mapped to A-shares, in the context of the gradual fermentation of the global food crisis, agriculture and necessary consumption-related fields are the phased direction of follow-up A-shares, and the market style is expected to achieve a switch from cycle to consumption. From the perspective of catalysts, the current round of shanghai epidemic will gradually enter the final stage, the biggest impact on consumption is about to pass, expanding domestic demand and boosting consumption will be the main focus of the next stage of policy steady growth. It is recommended to focus on the necessary consumption that is fully adjusted and benefits from the marginal improvement of the epidemic, as well as agriculture, forestry, animal husbandry and fisheries that benefit from rising product prices and rising inflation.
Risk warning: liquidity tightening exceeded expectations, the economy stalled downward, Sino-US friction intensified, the epidemic worsened beyond expectations, historical data is for reference only, and the future performance of the target company is uncertain.
1. Historical interpretation and investment clues of grain price increases
Under the influence of extreme weather since 2020, global food prices have entered a period of rapid rise, with the CRB food spot index as a reference, with a two-year increase of 109.80%. Since the beginning of this year, under the influence of supply factors such as the Conflict between Russia and Ukraine and the extreme climate, the price index has surpassed the previous high in 2010, setting a record high, and the increase this year has reached 19.27%. Under the intertwining of multiple supply shocks, the current inflection point of food prices has not yet appeared, and the subsequent inflationary pressures are constantly increasing. Looking back at history, since World War II, there have been six typical sharp increases in food prices caused by supply factors, which occurred from December 1949 to February 1951, November 1972 to November 1974, January 1978 to October 1980, November 1994 to July 1996, August 2000 to March 2004 and June 2010 to April 2011, of which the driving factors behind the increase in grain prices can be roughly divided into three categories. Driven by war, driven by oil prices and reduced grain production, this report explores the investment opportunities brought about by the current rise in grain prices by reviewing the deduction process and market performance of previous supply-led grain prices.
1.1 War drives food prices to rise
1.1.1, 1949–1951: Korean War
In 1949, the main international agricultural products began to rise, until 1951 there was a decline, and the mismatch between supply and demand of agricultural products caused by the Korean War was the main reason for the price surge. The CRB Food Spot Index rose by more than 44 percent between December 1949 and February 1951, as the Outbreak of the Korean War in June 1950 disrupted agricultural production and the supply chain was hampered by severe supply constraints. During the Korean War, more than 3 million civilians died, and the manpower, land, and water resources needed for agricultural production activities were severely hit in the war, manifested in the barrenness of land, the reduction of labor, etc., and eventually the reduction of grain production or even the end of the harvest. At the same time, the Korean War also caused poor grain circulation on the Korean Peninsula, reduced import and export trade, and increased freight costs, which led to a sharp contraction in supply. On the other hand, ordinary people are worried that the Korean War will turn into "World War III", and a large number of preventive food reserves will be stored in a short period of time, resulting in a short-term outbreak of demand. The imbalance between supply and demand contributed to the continuous rise in global food prices until the war situation improved in March 1951, when then-US President Harry S. Truman proposed an armistice to China, and international agricultural prices fell.
The US stock market in the bull market was briefly hit by the Korean War, and then regained lost ground to a new high, and the agriculture, forestry, animal husbandry and fishing sector, which benefited from the increase in global agricultural prices, had significant excess returns. In 1950, with the year-on-year growth rate of the US industrial production index turning from negative to positive, the economy showed a significant recovery trend, superimposed on the low inflation and tax reduction expectations, and the US stock market began to rise significantly. Although the outbreak of the Korean War on June 25 had a brief impact on U.S. stocks, S&P recovered lost ground and hit a new high in 500 years due to the profitability of listed companies that significantly exceeded expectations, with a range increase of 54.72%. From the perspective of industry performance, all industries have achieved positive returns, among which the agriculture, forestry, animal husbandry and fishery industry, which directly benefits from the increase in the price of global agricultural products, has ridden the dust, with a range of 164.58%, outperforming the S&P 500 and exceeding 109%, while other industries have little difference in rise and fall, showing a general rise.
1.1.2, 2000–2004: Iraq War
The CRB food spot index rose by 75.49%, the Federal Reserve's loose monetary policy opened the first wave of food prices, followed by the outbreak of the Iraq war on the second round of food prices to play a role in fueling the second round of food prices. At the end of the 20th century, the average annual growth rate of cereal production in 11 major developing countries such as China, India and Indonesia was only 1.1%, far lower than the annual population growth rate of nearly 2%, but at this time, the price of agricultural products did not rise in a trend, but the fluctuations could be seen to be significantly aggravated. After this, two major catalyst events triggered two subsequent waves of increases in agricultural prices. First, the Us Internet bubble burst in early 2000, GDP began to decline significantly, the Federal Reserve from January 2001 to June 2003 13 consecutive interest rate cuts, the federal funds rate from 6% to 1%, the loose monetary environment a large amount of capital poured into the agricultural commodity market, pushing up food prices. Second, the outbreak of the Iraq War in March 2003, the Middle East route was basically suspended, on the one hand, international grain ships bypassed South Africa, freight increased, on the other hand, shipping insurance premiums increased, all of which played a role in fueling the second round of food prices. It was not until the second half of 2004 that grain yields in the main international grain-producing areas returned to normal levels, and food prices began to decline.
At this stage, the US stock market is in the late stage of the bursting of the Internet bubble in 2000, the Iraq War has only brought a brief impact, and the real estate, agriculture, forestry, animal husbandry and fishing sectors are obviously dominant. From 2000 to 2002, the downward trend of the US economy superimposed on the bursting of the technology stock bubble, the US stock market began to fall sharply, and then on March 20, 2003, the Iraq War broke out, but from the beginning of the war to the US military announced control of all of Iraq lasted less than 1 month, the impact on the US stock market was small. Overall, the current round of agricultural product price increase range S&P 500 rose or decrease of -24.98%. From the perspective of specific industry performance, the real estate sector that benefits from the loose monetary environment and the continuous relaxation of housing loan conditions and the food sector, which continues to rise in agricultural prices, performed better, with a range of 148.96% and 67.94% respectively, while the information technology sector performed the worst due to the high valuation in the early stage, the bubble was serious, and the performance was the worst, with a range of -39%.
1.2. The oil crisis has pushed up food prices
1.2.1, 1973-1974: Food crisis
Crop prices rose rapidly in the early 1970s, mainly due to the double impact of natural disasters and oil crises. The rapid rise in crop prices in the early 1970s was divided into two phases, the first of which was from November 1972 to August 1973, during which the CRB food spot index rose by 99.56%, during which the rapid rise in crop prices was mainly affected by extreme weather. Natural disasters led to a decline in cultivated areas and food production in major crop-producing countries, during which the gap in agricultural product output continued to widen as a result of the decline in food reserves and rising demand for food imports during the Cold War. From the global cereal supply and demand data, the global grain library-to-sales ratio has dropped to 15.9% in 1973, which is at a low level. The second phase was from October 1973 to November 1974, during which the CRB food spot index rose by 125.56%. In October 1973, the fourth Middle East war broke out, the arab major oil producers decided to increase the price of crude oil market and reduce oil production, crude oil prices rose sharply from 2.48 US dollars / barrel in 1972 to 11.58 US dollars / barrel in 1974, and the price of crops rose sharply again under the impact of the oil crisis, reaching a stage high.
From the perspective of conduction path, the price of crude oil at this stage mainly affects the price of agricultural products through two paths: cost effect and substitution effect. First, because means of production such as diesel and fertilizer rely on fossil energy sources such as coal and oil, rising oil prices will significantly increase the production costs of major food crops. From 1973 to 1975, the fertilizer price index rose by 167.2%, but the price of fertilizer lagged slightly behind the price of crude oil to reach a stage high, and the prices of wheat and corn in the United States rose sharply in the same period. Second, because the price of crude oil will push up the price of fuel oil, synthetic rubber and other products, and then lead to an increase in the demand for fuel ethanol, natural rubber and other products through the substitution effect, resulting in an increase in the price of corn, sugarcane, rubber and other cash crops. In the early 1970s, the rise in crude oil prices drove a rapid increase in alternative consumption, and the U.S. cotton inventory consumption ratio fell rapidly, reaching a stage low of 28.01% in 1973.
The core logic of the deduction of US stocks at this stage is stagflation, under the triple influence of economic recession + food/oil crisis + political changes, the US stock market has fallen sharply, during which the energy and material sectors have fought against each other. Between 1973 and 1974, under the impact of the food crisis and the first oil crisis, the us fundamentals evolved from inflation to stagnation, and in 1974, the US economic growth rate turned from positive to negative, Q2 GDP growth fell back to -0.2%, and the fundamentals fell into a serious recession. In the same period, in order to combat the rapidly soaring inflation, the Fed's monetary policy continued to tighten, and in 1973, the target interest rate of the US federal funds rose from about 7% to about 10%. In August 1974, US President Richard Nixon was forced to resign due to the "Watergate incident", which further amplified market sentiment fluctuations. From October 1973 to November 1974, the U.S. stock market fell across the board, with the S&P 500 falling sharply by 41.1% and the Dow falling by 39.71%. From the perspective of industry performance, various industries have collectively declined at this stage. Among them, the monopoly pattern of the US telecommunications industry was broken, and the industry competition stimulated residents' consumption growth in communications, and the communications industry performed the most resistant to decline, with a decline of 20.8% during the period; in addition, supported by the rise in upstream commodity prices, the performance of the upstream energy and materials industry with pricing power was also opposed, while the rest of the industries fell by more than 30% in the same period.
1.2.2, 1978-1980: Oil crisis
Agricultural prices rose sharply again in the late 1970s, with the CRB Food Spot Index rising by more than 30% from 1978 to 1980, and the sharp increase in crop prices at this stage was mainly due to the cost increase caused by the oil crisis. The outbreak of the Islamic Revolutionary Movement at the end of 1978 and the subsequent suspension of Iranian oil exports led to a sharp rise in crude oil prices from $14.02/b in 1978 to $36.83/b in 1980, while the CRB food spot index rose by 34.76% over the same period. This stage once again deduces the transmission mechanism of the rise in oil prices to the prices of agricultural products in the early 1970s, on the one hand, the rise in oil prices has raised the rigid cost of agricultural production such as fertilizers and machinery. In the late 1970s, the use of chemical fertilizers in the United States continued to expand, and the proportion of potassium fertilizer per mu of corn and soybeans increased significantly from 72% and 51% in 1970 to 86% and 70% in 1980. Against the backdrop of rapid rise in oil prices, the fertilizer price index rose by 37.95 per cent from 1978 to 1980. In addition, since 1970, the level of agricultural mechanization has been continuously improved, and the number of agricultural machinery such as tractors and cotton pickers in the United States in the mid-1970s has reached 4.37 million units and 600,000 units, and the rise in crude oil prices has led to higher prices of agricultural machinery fuels, which has aggravated the rigid cost of crop production. On the other hand, the upward price of crude oil has pushed up the prices of fuel oil, chemical fiber, synthetic rubber, etc., and the use of fuel ethanol, cotton fabrics and natural rubber has increased under the substitution effect, further promoting the demand for cotton and other crops to increase significantly, and the price has risen. In 1980, against the background of the rapid rise in oil prices in the early stage, the US cotton coffers ratio quickly fell back to about 20%, far below the average of 76.71% in the 60s.
At this stage, the impact of the oil crisis on the economy is relatively short-lived, and the US stock market shows a volatile upward trend under the fall of inflation data, of which the energy sector leads the rise in various industries. In 1978, supported by strong private investment and household consumption, the US economy gradually moved from recovery to prosperity, and in Q4 1978, the US GDP growth rate has rebounded to more than 6%. Although the outbreak of the second oil crisis caused the US GDP growth rate to turn negative again in early 1980, the impact caused a relatively short period of disturbance to US fundamentals in the context of the Federal Reserve's sharp tightening of monetary policy to curb inflation in 1979, and inflation fell across the board after Q1 1980. From the overall performance of the market, from January 1978 to October 1980, the US stock market showed a volatile upward trend, during which the S&P 500 index rose by 42.68% and the Dow rose by 19.68%. From the perspective of industry performance, the performance of various industries in this stage is differentiated, supported by the rise in crude oil prices, and the energy sector leads the rise of various industries, with an increase of more than 140% during the period; while the decline in communications and utilities in the same period is more than 10%.
1.3. The reduction in production has led to an increase in grain prices
1.3.1, 1994-1996: Agricultural Agreement production reductions
The significant increase in world food prices between 1994 and 1996 was mainly due to the reduction of food export subsidies resulting from the Agreement on Agriculture and the reduction in global food production. Global food prices rose significantly from November 1994 to July 1996, during which the CRB Food Spot Index rose by about 34 per cent. The current round of food price increases is mainly due to the reduction of food export subsidies brought about by agricultural agreements and the reduction of global food production. Signed in April 1994 by the Uruguay Round General Agreement on Tariffs and Trade( GATT), the Agricultural Agreement part of which stipulates that developed countries must reduce the amount of export subsidies and the export volume of subsidized products by 36% and 21% respectively within 6 years, and developing countries by 24% and 14% respectively within 10 years, in addition, developed countries need to reduce agricultural production subsidies by 20%. Under this influence, the support and subsidies for agriculture in various agricultural exporters have gradually weakened, and global food production has declined. Specifically, in 1995, global cereal production decreased by 2.76% year-on-year, of which cereal production in agricultural exporting countries such as the United States and Russia decreased by 22.01% and 21.30% respectively. At the same time, between 1994 and 1996, the EU-15 countries' wheat exports fell by more than 3 million tons, which further aggravated the tight food supply and demand situation in the world market. According to the Us Department of Agriculture, world cereal stocks fell for three consecutive years from 1993 to 1995, and the inventory-to-consumption ratio fell to 14% in 1995, the lowest in the previous 10 years, and the imbalance between world food supply and demand gradually became prominent.
From the perspective of the performance of the US stock market, the US stock market during the current round of grain price rise shock upwards, medical, financial and mandatory consumption performance in the front, and the agricultural sector performance is weak due to the negative impact of subsidy reduction. From 1994 to 1996, the Federal Reserve gradually withdrew from the rate hike cycle, monetary policy turned from tight to loose, the US economy achieved a "soft landing", and GDP growth began to pick up after hitting a low of 2.2% in the fourth quarter of 1995. In addition, while food prices continued to rise during this period, overall U.S. inflation was moderate, with the U.S. CPI rising from Only 2.70 percent to 3.00 percent from November 1994 to July 1996. In this context, the US stock market continued its upward trend, with nasdaq and S&P 500 indexes gaining 38.05% and 35.14% respectively. At the specific industry level, the overall performance of medical, financial and compulsory consumer industries ranked first, up 55.32%, 48.67% and 45.14% respectively, and the market performance of optional consumer, material and communication equipment industries lagged behind, all outperforming the S&P 500 index by more than 15 percentage points. At the same time, in the second half of 1995 and the first half of 1996, the two periods of significant increase in grain prices, the market performance of the essential consumer sector ranked in the top three of the US stock industry, outperforming the S&P 500 index by 5.38 and 4.51 percentage points respectively, while the agricultural sector was weak due to the negative impact of subsidy cuts. Overall, during the current round of rising grain prices, due to the moderate performance of US inflation, the US stock market style has not shifted significantly to the cyclical sector, but in the two rounds of rapid rise in grain prices, consumer industries must obtain excess returns.
1.3.2, 2010-2011: Production decreased in extreme weather
The sharp rise in food prices from 2010 to 2011 was mainly caused by the large-scale reduction in global food production caused by extreme weather, and the liquidity of global easing was also one of the factors fueling food prices under the Federal Reserve's quantitative easing policy. From June 2010 to April 2011, global food prices rose rapidly, with the CRB food spot index rising by more than 45%, of which cbot wheat prices rose from $4.50/bushel to $7.77/bushel, an increase of nearly 73%. The sharp increase in food prices in this round is mainly due to the large-scale reduction in global food production caused by extreme weather. In the summer of 2010, western Russia and Eastern Europe suffered severe drought and persistent high temperatures, and food production in Russia, Ukraine and other regions suffered severe trauma. In the same period, Pakistan suffered severe flooding, which had a great impact on rice production in Southeast Asia. This was followed by the worst drought in 50 years in 2011, leading to a further decline in cereal production. Specifically, in 2010, global wheat production fell by 6.27% year-on-year, of which Russia and Ukraine wheat production decreased by 32.93% and 29.39% year-on-year, respectively, at the same time, Pakistan's cereal production in 2010 fell by 8.74%, and the US cereal production also contracted for two consecutive years in 2010 and 2011. According to the Statistics of the Us Department of Agriculture, from 2009 to 2011, the world's cereal stocks fell for three consecutive years, while consumption continued to increase, and the ratio of inventory consumption fell from 22.4% to 19.4%, and the supply and demand pattern continued to be tight. In addition, the Fed launched a second round of QE in November 2010, since which food prices have accelerated and generous liquidity conditions have created conditions for rising food prices. Overall, from 2010 to 2011, extreme weather was frequent, major grain-producing countries suffered large-scale production declines, the deterioration of the contradiction between supply and demand in the world food market, and loose liquidity jointly contributed to the rise in food prices in this round.
During the current round of grain price increases, the US stock market performed better than A shares, the cyclical industry performed in the Chinese and American markets, and the agricultural sector also had relative returns. During the period of food price increases from 2010 to 2011, the global economy was in the middle and late stages of recovery, and the inflation level of China and the United States rose in tandem, but the monetary policy orientation deviated. On the one hand, the focus of domestic policy shifted to anti-inflation in 2010, and during the year, there were many "interest rate hikes" and monetary policy turned to contraction. On the other hand, the Fed continued to introduce a second round of quantitative easing in the fourth quarter of 2010, and monetary policy remained accommodative. In this context, the trend of the Sino-US market has diverged, with the US stock market continuing to rise since the fourth quarter of 2010, while the A-share market has risen first and then suppressed, and has rebounded since December 2010. At the index level, the US stock market performed better than A shares during the current round of grain price increases, with the Nasdaq and S&P 500 indexes up 27.31% and 25.17% respectively, and Wonderland All A up 16.03%. At the industry level, the energy and agriculture sectors that benefit from inflation in the US stock market are significantly dominant, with a range of 50.90% and 48.62% respectively, while the cyclical industries represented by building materials, machinery and equipment, and non-ferrous metals in the A-share market are also more prominent, with the range up and down being higher than 40%. At the same time, the agriculture, forestry, animal husbandry and fishery industry has performed well in the early stage of this round of grain price increases, and between July 2010 and November 2011, the industry's largest increase exceeded 65%, although the subsequent shock fell back, but it still has relative benefits in the current round of grain price increases. Overall, during the current round of food price rises, due to the different orientations of monetary policy, the performance of the Chinese and American markets diverged, but in the environment of economic overheating and inflation, the cyclical industry performed in the Chinese and American markets, and the agricultural sector that benefited from the upward CPI also had relative returns.
1.4. The deductive logic of the current grain price increase and investment opportunities
This year' global cereal supply and demand is still in a tight balance pattern, in the multiple supply shock intertwined, the current tide of food price increase has not yet seen the inflection point, the situation in Russia and Ukraine is the key factor to determine the current trend of food prices, the impact on food lies in the output, cost and supply chain of three aspects, in addition to extreme weather will also aggravate the uncertainty of the supply side. Judging from the International Cereal Council's forecast of grain supply and demand, this year's cereal supply and demand maintain a tight balance, the supply side is still a risk exposure, and the current grain prices are more sensitive to changes in the situation of the Russian-Ukrainian conflict and the changes in risk factors such as sanctions in Europe and the United States.
The disturbance of the situation in Russia and Ukraine to global food mainly lies in three aspects: reduced production, increased costs and blocked supply chains. The impact of production is mainly due to the damage of the war to Ukraine's arable land, known as the "granary of Europe", the area of Ukrainian arable land ranks first in Europe, and in 2021, Ukraine's export share of sunflower oil is the first in the world, accounting for 47% of global exports, while barley, corn and wheat exports account for 17%, 14% and 10% of the world' export share, respectively. The Food and Agriculture Organization of the United Nations predicts that 20% of Ukraine's farmland will be affected by the war, covering an area of about 4-5 million hectares, and the potential damage to agriculture is expected to reach $6.4 billion. The cost impact comes mainly from the war-induced sanctions in Europe and the United States that led to the reduction of Russia's supply of energy and fertilizers to the world, russia is the world's second largest exporter of crude oil after Saudi Arabia. In 2021, Russia's crude oil exports are close to 230 million tons, of which 29% of the export volume is supplied to the European region, the war has caused the price of crude oil prices to directly raise the price of fertilizers and pesticides that need energy to produce, in addition, Russia is the world's largest fertilizer exporter, accounting for about 15% of the world's supply, belarus, which is also sanctioned because of the war, is a major producer of potash fertilizers, and potassium fertilizers are essential for many major crops, including soybeans and corn. Sanctions on fertilizers and energy in Europe and the United States have catalyzed the rise in agricultural production and transportation costs. From the perspective of supply chain, on the one hand, Russia and Ukraine itself began to restrict the export of some commodities, the Ukrainian government issued a decree on March 5 to prohibit the export of a series of basic products, on the other hand, about 95% of Ukrainian crops are exported through black sea ports, and the military banned commercial operations in black sea ports under the influence of the war, resulting in further obstruction of product supply. The Food and Agriculture Organization of the United Nations predicts that the potential agricultural supply chain losses caused by the war will reach $6.3 billion.
In addition to the impact of the international situation, extreme weather changes are also restricting the production of agricultural products, in recent years, the global extreme weather has gradually increased, the current Is the North American planting season, abnormal climate on the sowing situation also has a certain disturbance. Storm-affected areas of Canada since April will delay the planting of new crops, while the storm is also affecting the U.S. border, and unusual snowfall and cold are delaying the planting of crops, including corn and spring wheat.
Judging from the performance of US stocks during the previous food crises, food production cuts and supply chain damage caused by unexpected wars or extreme weather often lead to increased market volatility, but at the same time, essential consumer sectors such as agriculture have significantly exceeded their earnings during this period, such as the Wars in North Korea and Iraq and the extreme weather period in 2010. Because the rise in crude oil prices often forms a positive transmission of grain prices, in addition to the mandatory consumption leading the market during the previous food crisis, the energy sector can also achieve better relative returns, such as energy stocks rose by more than 140% during the second oil crisis. Three of the food price increases caused by supply shocks have seen significant over-benefits in the agricultural sector during the Korean War, the Iraq War, and the 2010 extreme weather cuts, while essential consumption has performed well during the Iraq War and the Agricultural Agreement. In addition, the rise in crude oil prices tends to transmit to food prices, so energy stocks have also benefited from the logic of price increases during the previous grain price increases. It is worth noting that food prices usually lead to a significant rise in inflation, so we also need to be wary of whether inflation is reasonable and controllable, the market focus often turns to the strength and effect of the policy taken by the Federal Reserve in response to inflation during this period, so the US stock market usually shows increased volatility and divergence in this period, once there is a us policy failure in the 70s, economic stagnation and other signs, the US stock market has entered the "lost decade", the allocation of large assets is far more important than the allocation of the US stock industry.
Mapped to A shares, under the catalysis of multiple supply factors, food price increases and other issues have not yet shown signs of relief in the short term, in this context, agriculture and necessary consumption-related areas are the current phased direction. Judging from the performance of US stocks, the agricultural sector related to upstream resources and inflation chains has performed better this year, as well as public utilities and mandatory consumption with strong anti-inflation attributes. Mapped to A-shares, the cycle has significantly outperformed consumption this year, and in the context of grain price increases, the market style is expected to achieve a switch from cycle to consumption. In addition, from the perspective of catalysts, the current round of shanghai epidemic will gradually enter the final stage, for the maximum impact on consumption is about to pass, in the context of uncertain external demand situation, expanding domestic demand and boosting consumption will be the main grasp of the policy. At present, the focus is on the necessary consumption that is relatively well adjusted and benefits from the marginal improvement of the epidemic, as well as agriculture, forestry, animal husbandry and fishery, which benefit from rising product prices and rising inflation.
2. Three-factor key change tracking and preferred industries
High-frequency data from the economy in April showed that production is gradually recovering, but the demand side is still sluggish due to the impact of the epidemic. There was no interest rate cut in April and the RRR cut was lower than expected, but the core was the spillover effect of overseas inflation and currency tightening, with domestic interest rates rising slightly, the real interest rate of US bonds turning positive, and the renminbi depreciating significantly. This week, the market continued to fall, risk appetite further declined, followed by the first quarter Politburo meeting on the economic situation and policy setting.
2.1 Key changes tracked by three factors: economy, liquidity and risk appetite
High-frequency data from the economy in April showed that production is gradually recovering, but the demand side is still sluggish due to the impact of the epidemic. Judging from the high-frequency economic data in April, the operating rate of various production ends is gradually recovering, the operating rate of Tangshan blast furnace is basically the same as that of March this year, and the tire operating rate is gradually rising after a brief decline at the beginning of the month. The demand side is still relatively sluggish, of which the transaction area of commercial housing in 30 large and medium-sized cities in the first 21 days of April fell by more than 50% year-on-year, and the downward range was further enlarged compared with March, and the current situation of the property market is still not optimistic. Vehicle sales have been affected by the pandemic and logistics since late March, with retail sales of 25,000 units in the first two weeks of April, down 35% year-on-year. From the perspective of logistics, the national vehicle freight traffic has recovered in the past week, but the Shanghai area is still at a low level. From the perspective of external demand, South Korea's exports increased by only 3% in the first 10 days of April, South Korean exports have a certain lead in domestic exports, and the current domestic epidemic and supply chain congestion have more disruptions to exports, which is expected to be reflected in April. Overall, both internal and external demand in April are facing greater downside risks, and steady growth still needs to be strengthened.
There was no interest rate cut in April and the RRR cut was lower than expected, but the core was the spillover effect of overseas inflation and currency tightening, with domestic interest rates rising slightly, the real interest rate of US bonds turning positive, and the renminbi depreciating significantly. In April, the central bank did not cut the MLF interest rate, the LPR interest rate was not lowered, the reduction of the RRR of 25bp was also lower than the market's expectations, and the speech of governor Yi Gang of the central bank at the Boao Forum on Friday made it clear that the primary task of China's monetary policy is to maintain price stability, indicating that from the current point of view, the operating space of price-based tools has faced multiple constraints, and quantitative tools and structural tools will become an important starting point for follow-up monetary policy. From the perspective of market interest rates, the ten-bond interest rate rose slightly above 2.8%, and from the perspective of market liquidity, the recent momentum of foreign capital inflows and outflows has been tepid. From the perspective of overseas liquidity, the US treasury interest rate continued to rise, approaching the 3% mark, the real interest rate once turned positive, in the context of the continuous narrowing and inversion of the Sino-US interest rate differential, the RMB exchange rate has depreciated significantly in the past week, once approaching the 6.5 mark.
This week, the market continued to fall, risk appetite further declined, followed by the first quarter Politburo meeting on the economic situation and policy setting. This week, A-shares continued to fall, each style is a general decline in the situation, the consumer style fell relatively little, and the risk appetite further declined. The consumption style benefited from the pilot adjustment of the entry quarantine policy in 8 cities, the market expected the marginal loosening of the epidemic control policy, and the signs of improvement in the epidemic situation in Shanghai, and the new cases and asymptomatic infected people all showed a certain decline. The growth style was mainly affected by the weaker-than-expected performance of some companies, the Tightening of the Federal Reserve and the upward impact of US Treasury yields. Follow-up attention to the first quarter Politburo meeting on the economic situation and policy setting.
2.2, April industry configuration: banking, agriculture, forestry, animal husbandry and fishery, medicine and biology
The main idea of industry allocation: Looking forward to April, we believe that the market has entered the bottoming stage after the confirmation of the policy bottom, and there are structural opportunities before the credit recovery and the economic bottom are officially confirmed. Under the background of the obvious contraction of valuation in the first quarter, the stock market deduced the grinding stage from the policy bottom to the market bottom. The performance of listed companies faced downward pressure in the second quarter, valuation changes were affected by the Fed tightening, and the subsequent valuation expansion stemmed from the credit recovery and the bottom of economic confirmation. Structural opportunities are in three areas: stable growth, post-cyclical and boom segments. Specifically, it includes, 1) stable growth is the direction of least resistance under the continuous impact of the epidemic, and the sector focuses on real estate, infrastructure, and large financial sectors such as banks that benefit from the stabilization of the real estate chain; 2) post-cyclical varieties that lag behind the changes in the economic cycle and can reflect inflation; 3) the prosperity growth sector focuses on the high-prosperity segments catalyzed by the strong industrial cycle, such as photovoltaics, medical services, and green electricity. Its traditional Chinese medicine biological sector in the past year the overall performance lagged behind, the valuation has been at the absolute bottom, with the pharmaceutical collection has become a normal event, the impact on the performance of the industry is gradually clear, multiple bearish factors gradually cleared, oversold rebound has taken shape. In April, it is preferred for industry banks, agriculture, forestry, animal husbandry and fishery, medicine and biology.
Bank
One of the supporting factors: the performance of the banking sector in the annual report period is strongly certain, the performance disclosure of state-owned banks last year is eye-catching, and the asset quality is stable and good. On March 30, ICBC disclosed that its operating income in 2021 was 860.9 billion yuan, an increase of 7.6% year-on-year; agricultural bank disclosed that its 2021 revenue was 721.7 billion yuan, an increase of 9.5% over the previous year; China Construction Bank's net profit for the whole year of 2021 was 302.5 billion yuan, an increase of 12% year-on-year; and Bank of China's net profit in 2021 was 216.56 billion yuan, an increase of 12.28% year-on-year.
The second supporting factor: under the current epidemic disturbance, the pressure on economic growth has increased, the goal of stable growth is clear, the policy is expected to continue to exert force, and the wide credit environment is expected to continue to strengthen. The government work report pointed out that cross-cycle and counter-cyclical adjustment should be strengthened to maintain sufficient domestic liquidity. The total amount of liquidity was further released, which was conducive to the expansion of credit in the banking industry.
The third supporting factor: the marginal relaxation of real estate policies and the ease of bank credit risks have been eased. According to data from the Shell Research Institute, the mainstream first home loan interest rate and the second set interest rate of the mainstream first home loan in 103 cities across the country monitored in March 2022 were 5.34%, both down 13 basis points from February. The relaxation of real estate policies is expected to alleviate the credit risk of banks, the pressure on the production of non-performing assets is controllable, and the asset quality and credit business are expected to be stable and good.
Targets: Everbright Bank, China Construction Bank, Industrial Bank, Bank of Communications, etc.
Agriculture, forestry, animal husbandry and fishery
One of the supporting factors: the de-capacity of the pig plate has been going on for a long time, and it currently has both a margin of safety and upward elasticity. Production capacity since July last year for eight consecutive months of decline, production capacity downward to maintain high intensity, the direction of deindustrialization to maintain high stability, and in supply and demand and cost and other factors are expected to accelerate, pig prices are in the bottom area, and the downward space is very small, the head of the enterprise corresponding to the 2022 valuation is at the bottom, with enough defensiveness, but also for the pig price upward period to bring greater flexibility.
The second supporting factor: the Ministry of Agriculture and Rural Affairs and the Ministry of Finance have clarified the key tasks of grain production in 2022 and given a package of policy support. On March 25, the two departments jointly clarified the key work and package of support policies for grain production this year, the main contents of which include issuing one-time subsidies to farmers, building 100 million mu of high-standard farmland, appropriately raising the minimum purchase price of rice and wheat, increasing investment in agricultural disaster prevention, mitigation and relief funds, and stabilizing the basic agricultural plan.
The third supporting factor: the central bank will increase financial support for the supply of important agricultural products such as soybeans and oilseeds. On March 30, the People's Bank of China issued the Opinions on Comprehensively Promoting Rural Revitalization with Financial Support in 2022, proposing to increase financial support for the supply of important agricultural products such as soybeans and oilseeds. The opinion will focus on increasing the production of soybeans and oilseeds, the supply of "vegetable basket" products, optimizing the allocation of credit resources, and continuing to increase credit input.
Target: Wen's shares, Makihara shares, New Hope, Aonong Biological, etc.
Pharmaceutical Biology
One of the supporting factors: Assisted reproductive technology services are included in Beijing medical insurance, and the inclusion price is consistent with the previous price. On February 21, Beijing municipality issued a notice to take the lead in integrating 16 assisted reproductive technology services into medical insurance. The new policy will be implemented from 26 March. In terms of price, the prices of 16 technologies have not been adjusted, indicating that the pricing of assisted reproductive technologies has been more reasonable.
The second supporting factor: the normalization of collection and procurement has been institutionalized, and the pharmaceutical industry has entered a benign adjustment stage after experiencing a painful period. In 2021, the national drug collection policy gradually shifted from pilot to normal operation, reshaping the entire market pattern. At present, the collection and procurement has successfully entered the normalization stage, and the investment logic of the pharmaceutical sector has also been reshaped after a year of valuation adjustment, and the collection and procurement will deepen the reform of procurement with quantity in the long run and promote the transformation and upgrading of the entire industry.
The third supporting factor: the approval of new Chinese medicine drugs has been accelerated, and the policy has supported the innovation and development of traditional Chinese medicine. At the end of 2021, the website of the State Administration of Traditional Chinese Medicine announced the "Guiding Opinions on Medical Insurance Supporting the Inheritance and Innovative Development of Traditional Chinese Medicine", which supports the innovation and development of traditional Chinese medicine in the fields of price and medical insurance, and the accelerated development trend in the field of traditional Chinese medicine is clear.
Targets: CR Sanjiu, Tongrentang, Lingrui Pharmaceutical, Puluo Pharmaceutical, etc.
3. Risk warning
Liquidity tightening exceeded expectations, the economy stalled downward, Sino-US friction intensified, the epidemic worsened than expected, historical data is for reference only, and the future performance of the target company is uncertain.
This article originated from the financial world