Investors seek returns in grain speculation: analysts

12:41, July 22, 2010      

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Government efforts to curb China's soaring property prices might have fueled speculation in the grain market, driving up wheat prices by as much as 10 percent in a year, say analysts.

Experts are calling on the government to open more avenues for investment while stock markets remain relatively flat and as speculative cash is driven out of the property market.

Speculation on grain products like wheat and mung beans could be a result of poor performances of Chinese equities and government measures to cool the property market, said Wang Jian, an economist with the Chinese Macroeconomic Society.

The slight drop in China's summer grain output could not explain the soaring grain prices, given China had a large grain stockpile, he said.

This summer's grain output was down 0.3 percent from last year's to 123.1 million tons due to drought in southwest China earlier this year.

The summer grain output rose for six consecutive years to top 123.35 million tonnes last year, 2.6 million tonnes more than the previous year.

China, the world's biggest grain consumer, devoured about 500 million tonnes of grain a year, said Bao Kexin, president of China Grain Reserves Corp..

The government maintained a grain stockpile equivalent to about 40 percent of demand to safeguard food supplies and control prices, he said.

By the end of March last year, China's stockpile of grain stood at 225.4 million tonnes, according to State Administration of Grain.

However, wheat prices at the end of June in China's main wheat producing areas, like Anhui and Shandong provinces, had exceeded 2 yuan (30 U.S. cents) per kg, up 10 percent year on year, according to the National Bureau of Statistics (NBS).

At some purchase stations in east China's Jiangsu Province, wheat prices topped 2.08 yuan a kg Wednesday, compared with 1.72 yuan last year, said Li Chunhu, head of the Xingqiao State Grain Storage in Sheyang City.

The price of mung beans soared from 9 yuan per kg in October last year to 20 yuan in May, according to the NBS.

Rising grain prices have ignited concerns about speculation, echoed by recent government findings.

China's National Development and Reform Commission (NDRC), the country's top economic planner, released a recording containing evidence of mung bean price manipulation on Sunday.

The recording of a mung bean traders conference in Jilin, northeast China, in October last year caught representatives calling for the hoarding of beans to raise the price.

Government agencies, including the NDRC, the Ministry of Commerce and the State Administration of Industry and Commerce, announced that a number of companies had received fines ranging from 500,000 yuan to 1 million yuan.

The move would help rein in grain speculation, after money drained out of the property market, said Wang Li, an economist with the Chinese Academy of Social Sciences (CASS).

However, the government could open more channels for investment, like further opening low-carbon industries, to draw speculative cash as China sought energy-efficient and environment-friendly development, she said.

The government's efforts to address excessive growth in property prices had discouraged speculation in the property market, said Wang.

In June, average housing prices in 70 major Chinese cities fell by 0.1 percent from May, according to the National Bureau of Statistics.

The annual growth of property prices in cities slowed for the second month, from 12.8 percent in April to 12.4 percent in May and to 11.4 percent in June.

The Shanghai Composite Index lost 26 percent in the first half of the year on concerns that the government's property market measures would dent economic growth.

Food prices gained 5.5 percent year on year in the first six months. In June alone, food prices rose 5.7 percent year on year, according to the NBS.

Source: Xinhua

(Editor:祁澍文)

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