March 7, 2011

 

China may face lower grain output in 2011

 

China's grain production this year will likely fall due to poor weather conditions, said Liu Yonghao, chairman of China's largest feed producer New Hope Group.

 

Liu's projection, if realised, would be a significant blow to a key government target for 2011, as Beijing chases an eighth consecutive year of record harvests amid sharply higher grain prices.

 

As the leading producer of animal feed, New Hope Group, the parent of Shenzhen-listed Sichuan New Hope Agribusiness Co, is at the vanguard of a swiftly changing industry, with rising meat consumption and the consolidation of hog farms sharply raising the level of grain and feedstock demand.

 

China posted a seventh consecutive record harvest at 546.4 million tonnes last year despite a smaller mid-year wheat harvest, and Ministry of Agriculture officials aim to maintain the trend in 2011.

 

The goal is viewed in policy circles as being crucial for Beijing's aim of self-sufficiency in grains and for deflecting import and price pressures that have resulted in an issue of macroeconomic significance.

 

Global and local grain prices, which reached record levels late last year, continue to be pushed higher by weather uncertainties, and are to likely to keep upward pressures on domestic inflation.

 

Food prices, which rose 10.3% in January compared with a year ago, have been the leading culprit behind escalating inflation.

 

Still, China's grain prices are lower than global counterparts, which have been driven higher by a string of recent natural disasters, Liu said.

 

The recent drought is expected to have some effect on China's winter wheat harvest, he said, but the country's wheat reserves are sufficient.

 

Private sector analysts estimate China has wheat reserves that are more than double the global stocks-to-use ratio - an indicator comparing grain reserves to its consumption levels - for the 2010-11 crop year, which supports the view of the government and the USDA that China has enough wheat reserves to cope even with drought-driven crop failure.

 

However, China's corn stocks are believed to be at historically low levels, suggesting high impending imports.

 

Reserves of key grains are closely watched as an indicator of the country's potential import appetite.