April 27, 2012
China's farm produce futures may rise by Q2 end
According to some futures brokers' quarterly reports, China's farm produce prices are seen to go higher by the end of the second quarter amid the tight grain crop worldwide and rising market demand.
A report from China International (CITI) Futures predicts that grain prices will extend their bull-run to the second quarter, adding that wheat, rice, and corn futures on the Zhengzhou and Dalian commodity exchanges will continue to follow a rising trend.
The report points out that the world's grain and oil demand will continue to outgrow output and supply. The rapid development of biomass energy will also tighten the supply of grain.
Meanwhile, China's grain self-sufficiency rate has dropped to less than 90% and there exists a controllable gap between domestic grain production and consumption.
In the first quarter of this year China imported 1.21 million tonnes of wheat and 13.31 million tonnes of soy, respectively up 348% and 21.35% from the same period of last year. Its corn imports in the first three months of this year reached 1.74 million tonnes, far higher than 5,216 tonnes in the same period a year earlier.
However, the report also points out that China's major grain crops' stock-to-consumption ratios remain within the safety margins. As the economy is slowing down, grain demand is likely to be suppressed to some extent and the price rise may see a decline in the full year of 2012.
CITI Futures predicts in its quarterly report that global edible oil supplies will be tight given the expected decline of South America soy as well as the rapeseed oil output decrease in Europe caused by adverse weather.
Meanwhile, domestic demand for edible oil has been going up after the Spring Festival holiday, which will further underpin cooking oil prices.
The broker also predicts that soy prices will be range-bound in the second quarter while soymeal prices will see choppy movement at high levels.
CITI Futures notes that China's cotton demand has shown signs of recovery and forecasts that consumption from downstream textile enterprises will continue to increase in the second quarter.
The broker also predicts that cotton futures prices will bottom out over the following months after correction in the first quarter.
Soochow Futures also holds that, with decreasing market supply of middle and high-grade cotton caused by the state purchase for reserve, firm support from this year's minimum purchase cotton price of RMB20,400/tonne (US$3,230.81) and easing monetary expectations, cotton futures on the Zhengzhou Commodity Exchange may rebound in the second quarter.