July 23, 2010

Investors turn to China's grain market for returns

Government efforts to curb China's soaring property prices might have fuelled speculation in the grain market, driving up wheat prices by as much as 10% in a year, said analysts.

Speculation on grain products like wheat and mung beans could be a result of poor performances of Chinese equities and government measures to cool the property market, said Wang Jian, an economist with the Chinese Macroeconomic Society.

The slight drop in China's summer grain output could not explain the soaring grain prices, given China had a large grain stockpile, he said.

This summer's grain output was down 0.3% from last year's to 123.1 million tonnes due to drought in southwest China earlier this year.

The summer grain output rose for six consecutive years to top 123.35 million tonnes last year, 2.6 million tonnes more than the previous year.

China, the world's biggest grain consumer, devoured about 500 million tonnes of grain a year.

The government maintained a grain stockpile equivalent to about 40% of demand to safeguard food supplies and control prices, he said.

By the end of March last year, China's stockpile of grain stood at 225.4 million tonnes, according to State Administration of Grain.

However, wheat prices at the end of June in China's main wheat producing areas, like Anhui and Shandong provinces, had exceeded RMB2 (30 US¢) per kg, up 10% on-year, according to the National Bureau of Statistics (NBS).

Food prices gained 5.5% on-year in the first six months. In June alone, food prices rose 5.7% on-year, according to the NBS.