July 14, 2010

China's H2 grain prices seen at moderate growth

The growth of China's grain prices will be moderate and controllable in the second half of the year, according to Li Guoxiang, a researcher at Rural Economic Research Institute of the Chinese Academy of Social Sciences.

China's summer grain output stood at 123.1 million tonnes this year, down 0.3% or 390,000 tonnes from a year ago, according to the National Bureau of Statistics (NBS). This is the first on-year drop after six straight years of growth.

Summer grain production accounts for one fourth of the annual output. Whether the country will continue to achieve bumper harvest depends on the autumn grain harvest, said Ma Wenfeng, an analyst with BOABC, an agricultural consulting firm.

If no extreme weather conditions occur in the second half of the year, China should see a good harvest of autumn grain, said Ma.

China has suffered from extreme weather conditions since the spring and an unprecedented flood is ravaging the southern part of the country this summer.

In the areas where grain production decreased as a result of bad weather, farmers are reluctant to sell; however, this will not fundamentally change the relation of supply and demand on the market, Li said.

The macro-regulatory policies, coupled with inflationary expectations, will have a strong impact on grain prices, Ma pointed out.

China continues with the policy of a minimum wheat-purchasing price this year. It has raised the minimum wheat-purchasing price in 2010 by a range of RMB1.72-1.8 (US$0.25-$0.27)/kg.

Rising grain prices will push up expectations of inflation, but will not have much impact on the Consumer Price Index (CPI) as grain prices have a low weighting in the CPI, Li said, adding that it will take a long time for the grain prices to pass on to other products.

The government is fully capable of regulating the prices by market means, he said.