July 29, 2011


China's food prices forecast to stabilise in H2


Food prices in China are expected to stabilise in the second half of this year on widely expected bumper grain harvests, increasing pork supply and a rise in vegetable planting area, analysts said.


China's inflation escalated to its highest level in three years in June, with the consumer price index (CPI) jumping by 6.4% on-year that month. Food prices, which account for nearly one-third of the basket of goods used to calculate the CPI, continued to rise by 14.4% in June on-year.


The analysts predict in a report released recently that food price growth will slip back to 13.5% in July and then continue to fall steadily and reach 6.2% in December. Its average growth rate in 2011 is estimated at 10.8%, 12% in the first half and 9.5% in the second half, they added.


China is likely to achieve grain output increase for the eighth year running in 2011 as it has already realised a rise in summer grain production and is anticipated to reap good harvests of autumn grain.


According to the Ministry of Agriculture (MOA), the country's autumn grain planting area is estimated to reach 77.13 million hectares this year, up 466,667 hectares over last year. The autumn grain crops are growing better than last year, which will set a solid foundation for a good harvest, the ministry said. Autumn grain accounts for about 75% of China's total grain production.


This year's summer grain output stands at 126.27 million tonnes, up 2.5% from a year ago. Meanwhile, the early rice output is expected to increase as the crop's planting area maintains stable while its average yield rises significantly this year, MOA noted.


As new grain is hitting market, the supply and demand on the market is expected to reach a balance and this will help stabilise prices, analysts said, adding that on-year growth of grain prices may fall due to carryover effects last year.


Analysts forecasted that grain prices' on-month rise in the second half will not be more than 0.5% and the on-year growth in December will fall to around 8%.


As a new round of pig production cycle is coming to a close, pork supply will increase to cool down the market.


Experts predicted pork supply will start to rise in the June-July period and see a jump at the end of this year


Zhou Wangjun, vice director of price department of the National Development and Reform Commission said earlier that pork prices in China are likely to stabilise or rise moderately before the Spring Festival which falls on January 23 of 2012 propped by the seasonal booming consumption, but may then slump after the holiday.


Analysts said that year-on-year rise of pork prices in June may be the peak this year because increasing supply will not support pork prices to rise sharply in the following months and there is a higher comparative base in the second half than the first half of last year.

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