August 19, 2010

China's grain prices seen to stabilise in H2

China's domestic grain prices are unlikely to show a big increase in the second half due to government's price control, but extreme climate should be given close attention, according to experts.

According to the National Development and Reform Commission (NDRC), China's top economic planner, the average purchase price of rice, wheat, and corn in the first half increased 12.3% on-year.

Prices of japonica rice and corn posted larger increases, and the price of new wheat rose rapidly when it became available in the market.

According to market analysts, the grain price rises in the first half are due partly to the anticipatory factor that grain production will decline in the face of frequent natural disasters, but a more important factor is the country's control over grain price.

China has seen abundant grain harvests for several years, and grain inventories have been high. China's grain inventory to consumption ratio is over 40%, much higher than the internationally recognised 17% to 18% security line.

Therefore, it is safe to predict that China is capable of maintaining grain price stability while allowing slight grain price increases.

Sheng Laiyun, spokesman of the National Bureau of Statistics (NBS), holds there is no foundation for significant grain price increases as factors suppressing price rises overwhelm factors pushing up price levels.

In July, the purchase price of new wheat stabilised; the purchase price of japonica rice and corn continued rising but at a slower pace; and the soy purchase price has declined to some extent.

The situation of a basically balanced supply and demand on the grain market is not expected to change in the second half of the year, but domestic extreme climate needs to be monitored closely, analysts concluded.