China-The grain harvest.
BEIJING, Feb 09, 2009 (Xinhua via COMTEX News Network) --
The majority of experts and insiders strongly believe that grain price in China will not experience sharp volatility this year despite the severe drought currently, counting on drought relief work and the country’s rich grain reserve to regulate the market.
China’s main crop producing areas have warned against severe droughts in succession after the traditional New Year Festival at the end of January. The drought has affected between 60 to 70 percent of wheat cropland in major wheat producing areas like Henan and Anhui provinces.
Stimulated by weather concerns, futures products contracts for wheat, corn, soy oil and rapeseed oil have surged to a record high on the domestic futures market.
Xu Xiaoqing, deputy chief of the State Council’s Department of Agriculture, said that it’s hard to accurately estimate the impact of the drought on grain production. Even if the drought leads to an output decrease this year, China’s grain safety will not be threatened in a fundamental sense, Xu added.
Xu noted that China has built up generous grain reserves and a transportation system over recent years. Supposing the natural disaster causes decrease of grain output by half, or 300 million tons, China still has the capacity to absorb it, Xu figured.
The latest data from the Ministry of Agriculture (MOA) showed that by February 3, 43 percent of wheat in drought areas was affected. Drought impacted land in seven major producing provinces amounted to 23.8 million acres, up 22.3 million acres year on year.
According to the National Meteorological Center, the drought has spread to 12 provinces due to the scarcity of rainfall and higher average temperatures. This drought shadows any others that have originated over the past half-century.
Boosted by drought news, wheat futures contracts traded on Zhengzhou Commodity Exchange became the hottest product. May benchmark contracts rose by 5.45 percent to 2,069 yuan/ton in three days of trading after the New Year Festival (February 2-4). Afterwards, wheat futures started falling back on short selling.
Prices of corn and soy contracts traded on Dalian Commodity Exchange also rallied for their substitutability with wheat.
Analysts pointed out that the sharp wheat futures price rise has close relation to market speculation for drought.
Technically speaking, wheat futures still display a strong upward trend, but investors should not expect the prices to go too high due to the present wheat glut on the domestic market, said Zhu Yeping, an analyst with China International Futures.
Zhu predicts that the drought will be relieved since the government has allocated large amounts of funds to fight against the drought and irrigation covers over a half of drought area cropland.
Ma Yongliang, director of Rural Economy Center of MOA, said that worrying about the supply of grain isn’t yet justified since the impact of drought on wheat output can’t be concluded until March, when wheat seedlings turn green.
China has achieved bumper harvests five years running and accumulated rich grain stockpiles, so the government is able to regulate the wheat supply by adjusting foreign trade of wheat and selling reserves, Ma figures. An analyst with Cngrain.com also holds that the current drought fails to expose substantial effects on production. As grain sources become more diversified, the government also raises its ability to regulate the market, he added.
Furthermore, China will continue emphasizing improving environment investment of rural areas, expanding direct subsidies to grain production, enlarging reserves of grain, cotton, edible oil and pigs to stabilize the market, according to a recent State Council report..
