July 7, 2008

China's grain prices under pressure despite bumper harvest

Despite bumper harvests, is unlikely to produce enough grain this year to meet consumption and the deficit will be covered by its reserves, a senior grain official was quoted as saying.

China is expected to harvest about 500 million tonnes of grains this year, lower than the projected 518 million tonnes that will be consumed, Zeng Liying, a deputy director with the State Grain Administration, told a conference.

Despite high grain stocks, which were sufficient to keep prices in check, there was pressure for prices to rise, she said.

She cited higher production costs, particularly for fertiliser, as well as higher international soybean prices as factors that could push up domestic grain prices. China is the world's largest soy buyer.

However, the department assured that grain storage by the year-end would be maintained at a relatively high level to secure market supply and stable grain prices.

China's summer grain output reached 120 billion kg, up 2.5 billion kg year on year, according to the Ministry of Agriculture.

Surging CBOT soy prices have driven domestic prices for edible oils to a record high in the first half of the year.

Soymeal hit a record over the past month, which could trigger price rises for pork, poultry and eggs, already major contributors to the country's decade-high inflation, analysts said.