August 27, 2012

 

US drought expected to cause higher cooking oil, pork and soy prices in China

The US drought crisis is expected to cause higher prices for cooking oil, pork and soy in China.

 

The drought, the worst in more than 50 years, will affect China but not to the extent that basic food supplies are threatened, said Zhai Jianglin, vice-president of the Academy of Science and Technology at the State Administration of Grain.

 

There is no indication of any need for the government to stabilise the market with strategic reserves of oil-bearing grains, he said. However, he declined to comment on whether Beijing will use reserves in the following months.

 

Price hikes for soy and corn in the international markets will affect domestic prices because of imports.

 

"For other grains, such as rice and wheat, China has sufficient domestic supplies and will not easily be affected", he said.

 

Zhang Zhongjun, assistant representative of the UN Food and Agriculture Organisation in China, said imports account for around 80% of the country's soy supplies.

 

Zhang added, domestic grain supplies are adequate and there is even a substantial reserve programme.

 

While corn prices will rise, China imports just 5% of its supplies, Wang Ruiyuan, vice-president of the Chinese Cereals and Oils Association, said.

 

Huang Guiheng, manager of Bric Global Agricultural Consultants, added that the US drought has already driven up domestic soy prices significantly, as half of China's annual soy imports are from the US.

 

The price of imported soy rose from US$685 per tonne in April to US$789.03 in August.

 

"The global soy price rise is unlikely to end until we find out more about the South American planting in November," he said.

 

China imported 34.92 million tonnes of soy in the first seven months of this year, an increase of 20.1% from a year earlier, according to the General Administration of Customs.

 

China imported 52.64 million tons of soy in 2011. Agricultural specialists forecast that imports in 2012 will range between 55 million and 57 million tonnes.

 

Huang said that domestic soy production will be around 9.8 million tonnes this year, against 10 million tonnes in 2011.

 

The rise in the price of soy is not an isolated event. It will also push up the price of cooking oil and increase feed costs for pig farmers.

 

Consequently, pork prices might rise in the fourth quarter as could the consumer price index, a main gauge of inflation, Huang said.

 

The National Development and Reform Commission recently talked with five major edible oil suppliers, including COFCO and Yihai Kerry, to ask them to hold back price rises, media reports said.