March 3, 2008

 

China grain exports to dry up next month

 

 

China's dwindling grain exports are estimated to halt completely next month, while Beijing veers away from further imports due to skyrocketing global prices and drying up of stockpiles.

 

Beijing has ceased the issuance of export quotas for foreign sales of corn, wheat and rice, after introducing grain export duties in January, industry observers pointed.

 

China followed suit to a number of countries, including Russia and Argentina, which are curbing or completely halting exports to ward off food inflation by securing domestic supply.

 

Global grains stockpiles have sunk to lows not seen for decades, propelling prices to record highs. Demand from the biofuel sector and adverse weather in top producers such as Australia, Canada and the EU, were seen as major reasons for the global stock drain.

 

China's top priority right now is its 1.3 billion people, which account for nearly a fifth of global grains consumption. However, it wants to avoid imports which could trigger further inflation.

 

Currently, analysts say, Beijing is struggling to contain price hikes. Inflation hit an 11-year high of 7.1 percent in January, partly due to massive imports of high-priced soy and soy oil.

 

China is heavily reliant on edible oil imports, with soy imports growing threefold to 30.82 million tonnes by 2007, more than a half of global soy trade.

 

A government think-tank said the country has already lost control over edible oil prices. If it cannot stabilise grains prices, it would be in a big trouble, the official said.

 

Meanwhile, China's wheat prices are still among the world's lowest, due to bumper harvests for four consecutive years.

 

While Chicago wheat futures more than doubled in a year to hit a fresh high of above US$12 a bushel, or about US$440 a tonne, China's average wheat prices were RMB1,570 a tonne (US$220).

 

Traders estimated China's wheat stocks at 100 million tonnes or more, which may be enough to meet a full year's demand.

 

On the other hand, corn stocks which used to be gargantuan were diminished down to 30-40 million tonnes, about a third of annual consumption.

 

A Beijing official said the central government is getting worried on escalating global corn prices, especially with a looming domestic shortage.

 

To raise domestic production, Beijing is now increasing direct subsidies for grains farmers by 75 percent this year.