July 20, 2011

 

China's grain futures to stay firm despite bumper harvest

Grain futures prices traded on the Dalian and Zhengzhou commodity exchanges are expected to maintain at high levels though China has achieved an increase in summer grain output for the eighth year running this year, analysts said.

 

Increasing demand, rising planting cost and the government's policies will combine to prop up grain prices in the following period.

 

This year's summer grain output stands at 126.27 million tonnes, up 3.12 million tonnes or 2.5% from a year ago. Bumper harvests reflect that the country has abundant grain resources to regulate the market, experts said.

 

Fang Yan, vice director of the rural economy division of China's National Development and Reform Commission (NDRC), said that the country is expecting a bumper harvest this year, with a successful summer harvest already completed and autumn grain production "going smoothly".

 

Summer grain output rise has suppressed upward momentum of farm product prices to some extent. Agricultural commodity prices both at home and abroad slipped back in the second quarter but the majority of products still held at high levels compared with the past years.

 

Meanwhile, the government has steadily raised the minimum purchase prices for grain in an effort to protect farmers' interest and stabilise production. It set this year's floor prices for government's wheat purchases at RMB1,900 (US$294)/tonne for white wheat and RMB1,860 (US$288)/tonne for red and mixed wheat, up RMB100 (US$15)/tonne and RMB140 (US$22)/tonne over last year. The minimum purchase prices of paddy have been set at RMB2,040 (US$315)/tonne, higher than RMB1,860 (US$288)/tonne in 2010.

 

Currently, strong glutinous wheat and corn futures are traded on the Dalian Commodity Exchange while early rice is listed on the Zhengzhou Commodity Exchange.

 

As the national economy is going upward, grain demand from industries and feedstuff consumption will be boosted. Meanwhile, planting cost and labour cost are both on a rise, which will also support grain prices.

 

The government's agricultural policies in the past several years tended to protect farmers' interest and also caused farmers' reluctance to sell. Grain prices therefore may maintain at a reasonable level and are unlikely to drop significantly.

 

Currently, the international grain prices remain high. Although the expected rise in global output may weigh on prices, grain futures are unlikely to dive as they will continue to be a strategic investment resource in the backdrop of weakening US dollar.