December 30, 2011


Bumper crop, weak global outlook deflates China's agri commodity prices


China's agricultural commodity futures including cotton, sugar and edible oils fell across the board in 2011, weighed by a record grain harvest, global recession fears and tightening domestic credit.


That was in sharp contrast to 2010 when changing appetites drove sharp price increases in China's agricultural markets, as the Asian giant became the largest agricultural export market for the US, the world's biggest agricultural producer.


The pressure on prices could continue next year as a big domestic harvest and an uncertain global outlook continue to weigh on sentiment.


Last year's rally, underscored by China turning a net corn importer, fizzled this year on a range of factors dominated by broadly weaker global markets.


Soy futures fell 4.4% on-year while corn was 3.2% lower on the Dalian Commodity Exchange in line with softer Chicago farm futures. Wheat fell 14.3% on the Zhengzhou Commodity Exchange.


Prices are likely to remain under pressure after China announced another record harvest in December, taking its grain output up 4.5% to 571.2 million tonnes.


Still, underpinned by China's fundamentally strong demand, soy and corn prices have declined by smaller margins than prices of other commodities such as cotton and edible oils.


Weighed by an inventory glut, cotton prices fell sharply in the first half this year and have not recovered much since. Zhengzhou cotton is down about 26% this year, the steepest fall among major agricultural contracts. In comparison, prices nearly doubled in 2010.


Edible oils prices also fell sharply this year, with palm oil futures down 19.3% and soyoil down 15.3%.


"Since September, edible oil prices have fallen sharply and medium-to-smaller traders incurred broad-based losses, negatively affecting restocking demand," the state-backed China National Grain and Oils Information Centre said Thursday.


Despite a mild rebound in prices recently, bulk edible-oil sales have remained sluggish, it said.


Sugar futures on the Zhengzhou bourse fell 15.6% this year, pressured by the weakness in global sugar prices and massive imports. Near-month ICE raw sugar futures are around 23.12 cents now, down 28% on-year following a global surplus.


China will likely mark a fourth consecutive year of sugar output falling short of demand this year, Rabobank said.


In the first 11 months, sugar imports rose 48% to 2.4 million tonnes, with the pace of imports accelerating in November to reach the second-highest monthly volume on record.


Despite hopes among global corn exporters that China would sharply hike its corn purchases, Chinese corn imports fell 24% in the first 11 months to 1.2 million tonnes.


A bumper corn harvest has taken the pressure off depleted state corn reserves.

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