Monday, September 29, 2008

Rice prices on way down?

An article from the China grain net detects weakening rice prices as a big new harvest comes on the market. The author of the article speculates that the government will try boost prices by increasing procurement for state reserves.

The author notes the influence of the government on prices. Early-season rice harvested this summer opened with a relatively high price after harvest, but it fell when government procurement tailed off. In Hunan, Hubei, Chongqing, and other areas of the south where grain reserve depots have been procuring rice the price for middle-season rice is about 0.9 yuan/jin or higher. In Sichuan, the price is about 0.9 or lower--the weak prices there are attributed to government aid (rice) pumped into the region affected by earthquake, pushing supply beyond demand.

In the northeastern provinces, rice has just started coming on the market. The author anticipates a similar pattern of high opening price followed by a decline unless the government decides to support prices. The policy for grain hasn't been announced yet, but the author--in classic communist style--cites an inspection trip to Henan by President Hu Jintao in which he commented that it was important to raise grain prices. There are also rumors that raising grain prices was discussed in a high level meeting with Premier Wen Jiabao.

The author observes that the Chinese government is in a balancing act of wanting to help farmers but afraid of food price inflation. He thinks that the government will support northeastern rice prices and corn prices by procuring more grain to set a price floor while wheat prices will be adjusted through auctions. Some experts have recommended a price floor of 0.95 yuan/jin for northeastern rice but the author notes that suggestions are not always adopted.

Another article in the Xin'an Evening News written in classic communist propaganda style seems to be promoting government procurement of rice. The article describes farmers in Wuhu (eastern Anhui Province) lined up on their tractors at a grain depot cheerfully selling their rice at 0.95 yuan/jin. One farmer says this price is so good he will go get the 10,000 jin he has at home and bring it back for sale. He raves about the service at this grain depot: "I bring my rice into the depot and the employees unload it for me; I sell 6,000 jin of rice while I drink tea." The price is above the minimum floor price. The article seems to be promoting government procurement: "The state-owned grain marketing companies are well organized, make careful arrangements, and play an active role as the main market channel to ensure that farmers enjoy selling their grain." The article brags that state-owned companies have procured 240,000 metric tons of rice so far this season, double what they bought last year at this time.

According to the second article, Anhui's rice area this year is estimated at 22.09 million mu, up 1.6 million mu from 2007. The forecast output for Anhui is 9 million metric tons of rice, up 650,000 from last year. 5.9 million mu have been harvested so far (September 20).

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