February 18, 2011

 

China's grain prices may ease temporarily
 

Grain prices in China may slip back in the short term, weighed by tightening monetary policy, rising South American soy harvests in, easing drought in north China regions, and government's ongoing sales of grain and oils reserves, analysts said.

 

Since the beginning of this year, domestic agricultural market has been rallying given the boost from international market and lingering drought in major winter wheat growing regions.

 

However, China has resumed auctions of soy, edible oil reserves this year, and the increasing supply onto market starts to pressure prices.

 

Northeastern China's Heilongjiang province sold out 79,790 tonnes or 74% of reserve soy it offered at an auction Tuesday (Feb 15). This is the province's fourth soy auction this year and auction volume has been recovering due to higher import prices.

 

Also on Tuesday, China sold out 93% of 99,626 tonnes of rapeseed oil reserves it offered at an auction, at an average price of RMB9,688 (US$1,472)/tonne.

 

Since October of last year, China has auctioned a total of 895,000 tonnes of rapeseed oil reserves, with 772,900 tonnes or 86.36% transacted.

 

Currently, China still holds nearly five million tonnes of vegetable oil reserves, which is able to support auction sales for two months. Meanwhile, it has more than five million tonnes of soy reserves that were produced in crop year of 2008/09 and need to be sold soon for expiration concern.

 

In the short term, the government's sales of reserves will play a positive role in stabilising prices.

 

Drought in Argentina's soy growing areas and China's winter wheat producing regions is a key factor that props up grain prices in recent period. However, improving crop conditions in South America and sluggish off-season edible oils demand on the domestic market are promoting investors to book profits. Meanwhile, the easing of drought in north China regions reduces expectation of sharp output decline this year.

 

China's acreage of winter wheat affected by drought fell slightly on February 15 from the previous day thanks to snowfalls and irrigation, the Ministry of Agriculture said Wednesday.

 

On Tuesday, drought area in the country's eight key producing provinces dropped 39,300 hectares to 6.71 million hectares, with the drought-hit planting area down 6,000 hectares to 1.21 million hectares.

 

China's main wheat growing regions include the provinces of Shandong, Henan, Hubei, Anhui, Shanxi, Shaanxi, Gansu and Jiangsu, accounting for more than 80% of the nation's total wheat output. The country's winter wheat output is about 90 tonnes, or more than 90% of annual wheat production.