April 28, 2008

 

China grain prices to soar further, as cultivation costs rise by 30 percent

 

 

China's grain prices are expected to surge further as cultivation costs, particularly in the grain producing region, jump by 30 percent from last year due to high material costs, with fertilizer prices going up by as much as 50 percent.

 

Aside from fertilizer prices, labour cost has also jumped by 60 percent while prices of insecticide, herbicide and antiseptic have risen 20 percent, specifically in northern China, the Shenyin Wanguo Research & Consulting Co., a subsidiary of SYWG Securities, reported.

 

Analyst Han Juncheng, from SYWG Research, said that the Chinese government cannot offset all the rising costs faced by farmers.

 

Although farmers will receive subsidies of RMB 750 (US$107.31) per hectare of grain under cultivation, cultivation costs per hectare have increased by RMB2,000 (US$286.16) this year, Han explained.

 

Diesel prices will be another major factor shaping cultivation costs this year, Han added.

 

Corn and rice acreage is expected to decline by 10 percent this year, while soy acreage is estimated to increase between 15 percent and 20 percent against last year.

 

The report stated that corn prices would lift by 8 percent on strong demand from processing enterprises in the face of reduced supply.

 

China's corn spot market will see increased activity as small and mid-scale corn processors increase purchasing due to limited storage capacity, industry observers said.

 

Expectations for strong demand growth this year will keep markets tight with more pressure on corn prices.

 

Market analysts all in all forecast long-term growth in corn prices. However, they added that corn prices may likely experience some weakness as farmers clear remaining stockpiles once spring sowing is completed.