China's southwest region is suffering from a severe drought, with water levels in major rivers at record lows, the Ministry of Water Resources said.

About 79 million mu (5.3 million hectares) of crops are under stress in the region, about half of them in Yunnan province alone, a statement said yesterday. More than 18 million people and more than 11 million head of livestock nationwide are short of drinking water, it said.

The drought in most of Yunnan and parts of Guangxi and Guizhou provinces has lasted for almost five months, the ministry said. Rainfall dropped by more than half in those provinces, water levels in major rivers have plunged and volumes in most reservoirs have dropped by more than 20 percent, it said.

Eoin Treacy's view Yunnan is primarily known for its industrial metal deposits but is also a relatively high rainfall area which feeds the Yangtze, Pearl and Mekong rivers. If this area is experiencing drought, it is reasonable to assume that water levels further down river, where major agricultural activities take place, are somewhat lower than normal. At the very least, if there is drought in one area, there will need to be excess rain somewhere else to make up the shortfall. This is having no effect on commodity prices right now but the situation is worth monitoring due to the potential for bullish impact on rice prices later on this year.