Soaring global grain prices may impact China's domestic market

12:09, August 09, 2010      

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During this time of the year when major buyers are purchasing early paddy rice, expectations for higher grain prices remain high, and the strong upward trend for grain prices in the global market has added pressure on the domestic market.

With the increase of China's grain imports and international capital entering the domestic agricultural product market, the price hike in overseas markets will have a more significant impact on China's domestic market, experts say.

Currently, the purchase price for early paddy rice stands at around 1.90 yuan (0.28 U.S. dollar) per kilogram, higher than the minimum purchase price of 1.86 yuan. However, it cannot meet farmers' expectations.

Recent extreme weather events were to some extent the basis for the price hike expectations. Early paddy rice production will decline compared to the previous year.

State-run grain enterprises have not fully started grain purchases this year, said Jiao Shanwe, chief editor with Cngrain.com, a Web site that provides information for the grain market.

"This year's early paddy rice has lower quality and faces lower production, and relevant enterprises are all waiting for further policy regulations," he said.

Since both domestic and international grain markets face limited supply, a price hike in the overseas market is very likely to cast a shadow on the domestic market, experts say.

Wildfires and serious droughts have ravaged a large swath of central Russia this summer, destroying one-fifth of its crops. On Aug. 5, Russia announced a ban on the export of grains that would begin Aug. 15 and last through the end of the year.

On the same day, September wheat's 60-cent gain on the Chicago Board of Trade at 7.85-3/4 U.S. dollars per bushel was the first limit-up settlement and the highest front month price since August 2008.

The Food and Agriculture Organization of the United Nations last week said that estimated global wheat production in 2010 will be 651 million tons, 25 million tons lower than previous predictions. Since June, wheat prices on the global market have surged 50 percent.

"In the 2008 food crisis, grain prices in China's domestic market remained stable due to abundant production. But as both domestic and overseas markets face tight supplies, the markets face similar pressure for higher grain prices," said Li Guoxiang, a researcher with the Chinese Academy of Social Sciences (CASS).

China's grain imports have increased significantly since 2010. Statistics from the Ministry of Agriculture showed that China imported 2.5 million tons of grain in the first half of 2010, up 60.7 percent year on year. Net grain imports were 1.8 million tons, 120 percent higher compared with the same period 2009.

Li pointed out that international capital may have a more severe impact on domestic grain prices than prices of imported grain.

"Holders of international capital are playing for high stakes with expectations of a huge increase in China's domestic grain prices. That's why they are entering China for speculation," he said.

By People's Daily Online

(Editor:祁澍文)

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