Wanlian Securities: Super El Nio Has Arrived, Supply Shocks Transmit Along the Chain

Wanlian Securities: Super El Nio Has Arrived, Supply Shocks Transmit Along the Chain Wanlian Securities released a research report stating that the current El Nio has been confirmed as a super-strong event and will become the strongest since systematic monitoring began. The climate shock from El Nio will transmit gradually along the industrial chain: high temperatures and drought in Southeast Asia and South Asia, combined with restricted passage through the Panama Canal, will hit Shenzhen Agricultural Power Group's supply from both output and landed-cost ends; the affected pathways for midstream varieties diverge markedlypalm oil has the highest probability of production cuts but the furthest realization point, sugar's net impact depends on Brazil's sugar mix, corn's elasticity is amplified by low inventories, and rubber requires continued tracking of producing-area inventories and downstream demand; downstream seed, agrochemical, and livestock farming lag by about one year. At present, weather-expectation pricing in the sector is already relatively full, and subsequent excess returns will depend on the realization of production cuts; in terms of allocation, it is advisable to focus on varieties with concentrated producing areas, thin inventories, and aligned policy direction. The main views of Wanlian Securities are as follows: This El Nio event has been confirmed as entering "super-strong" territory El Nio is a climate phenomenon in which abnormally warm sea surface temperatures in the central and eastern equatorial Pacific alter global atmospheric circulation, causing high temperatures and drought in Southeast Asia and South Asia, increased precipitation on the west coast of South America, and affecting global crop production; at the same time, drought in Central America lowers water levels in Gatun Lake of the Panama Canal, tightening draft and passage restrictions, which in turn raises the landed cost of grain routes from the United States to Asia. In this El Nio event, the ONI entered an upward channel in spring 2026 and rose rapidly; on October 9, 2026, the National Climate Center confirmed that a super-strong El Nio event had officially formed in September, and this event will become the strongest since systematic monitoring began, with the peak expected in late autumn and early winter. The impact of El Nio transmits along the industrial chain, with markedly divergent impact pathways and rhythms at each stage For bulk varieties, palm oil undergoes production cuts along three timelinessex differentiation, inflorescence abortion, and fruit bunch developmentwith a high probability of production cuts but a relatively distant realization point; rubber will see production cuts due to damage to rubber tree vigor from drought in Southeast Asia; sugar presents a hedging pattern of Northern Hemisphere production cuts and Southern Hemisphere bumper harvests, with the net impact depending on Brazil's sugar mix; corn and soybeans usually tend toward bumper harvests, but waterlogging in South America that this super-strong event may cause, as well as the current drought in U.S. producing areas, will both affect crop yields. On the industry side, seed industry starts from growers' increased preference for stress-resistant varieties; drought expectations strengthen demand for breeding and promotion of stress-resistant varieties, improving the transmission from orders to revenue recognition; agrochemicals are tied to farmers' planting budgetsafter rising grain prices improve planting returns, demand for pesticides and fertilizers expands accordingly, and budget adjustments require waiting for a complete planting season; in livestock farming, higher prices for raw materials such as soybean meal raise feed costs, deepening farming losses and thereby accelerating capacity reduction, corresponding to a contraction in commercial hog supply about 10 to 12 months later. Investment recommendations At present, weather pricing in the agriculture and livestock sector is already relatively full, the rally is basically over, and excess returns will depend on the pace of realization of production cuts. At the variety level, relative returns will mainly depend on whether output losses can be verified, the thickness of inventory safety cushions, and whether policy and production-cut directions are aligned; at the industrial-chain level, the export chain will realize first, while demand-rigid agricultural inputs have prominent defensive attributes. The bank maintains its "outperform" rating on the agriculture and livestock industry and suggests focusing on two main lines: 1) companies in related industrial chains that may benefit from a possible upward move in Shenzhen Agricultural Power Group prices; 2) seed companies whose stress-resistant variety demand may increase under extreme weather, as well as export-chain and demand-rigid agricultural input companies. Risk factors: the risk that El Nio intensity and duration fall short of expectations; the risk of inventory and policy offsets; the risk that downstream demand and transmission fall short of expectations.