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China's agricultural prices: -4.2% with hogs, +8.8% without them

How is farm price inflation affecting China? Dimsums blog calculated price changes from major commodity prices collected over the past two years from the National Bureau of Statistics raw material price reports and Ministry of Agriculture and Rural Affairs to assess the overall picture--which is quite cloudy.

A number of agricultural commodities in China posted double-digit price increases in 2021. However, the average 42-percent in hog prices swamped everything else. The figure below shows that cotton prices had the strongest increase, a 38-percent rise from 2020. Eggs, corn, soybean meal, domestic soybeans, and raw milk prices were up by 13 to 30 percent. Wheat, mutton, and beef prices posted single-digit increases. Rice prices have been falling due to weak downstream demand, with many provinces launching minimum price purchases to put a floor under prices following the 2021 harvest. Chicken and peanut prices were down 2% and 5%, respectively. 

An overall price index (weighted by value of these commodities' output) comes out to an average -4.2% price change in 2021. Hogs had an outsized influence on the index due to the huge value of their output. Recalculating the index excluding hog prices yields an 8.8% weighted average price increase. 

Annual average prices calculated from weekly data on raw material purchase prices from China National Bureau of Statistics and livestock wholesale market prices from Ministry of Agriculture and Rural Affairs. Weighted average calculated using 2020 output value of each commodity as weights. 

The pace of growth in prices varied over the course of the year. Cotton prices staged a comeback from their depressed 2020 pandemic level as export orders from the United States and other countries roared back. A cotton market report said a ramp-up of excess cotton ginning capacity in the Xinjiang region led to a bidding war for cotton. Corn prices dipped in 2021 after climbing 60 percent in 2020. December 2021 corn prices were only about 2 percent higher than their year-earlier level. On the other hand, Chinese wheat prices have been on the rise since the procurement season ended in September--last summer's heavy rains and flooding may have impacted the supply of milling-quality wheat more than indicated by record-high production data. December 2021 wheat prices were up 15 percent from a year earlier. Hog prices peaked in January, and were down 60 percent at their low point in October. Hog prices in December 2021 were down 51 percent from a year earlier.

China National Bureau of Statistics raw material purchase prices indexed to their January 2020 values.

Putting recent price changes in context shows that beef and lamb prices have been generally on the rise since 2012. A new burst of beef and lamb price growth came with the onset of China's pork shortage in 2019. The spike in pork prices that lasted from October 2019 to January 2021 was far bigger than previous gyrations, but it looks modest in comparison with the rise in China's beef and mutton prices. Chicken prices surged during the onset of the pork shortage, but the 2019 chicken price spike was a blip compared with pork, beef and mutton prices, and it quickly dissipated.

China Ministry of Agriculture wholesale market prices.

Feed prices reported by the agriculture ministry show that pork and poultry producers face sharply higher feed costs after several years of depressed corn prices during 2016-19. Corn prices in China are now higher than they were in 2012-14, but soybean meal prices are not yet back to their peak values in 2007 and 2012. Still, swine and poultry farmers are now getting about the same prices for their animals they got in 2016-18 but their feed prices are about 15 percent higher than back then.

China Ministry of Agriculture wholesale market prices.

Energy prices hit their peak in October 2021 and weakened during November-December as the Chinese economy lost steam. 

China National Bureau of Statistics raw material purchase prices indexed to their January 2020 values.

Chinese officials are worried that the rise in farm input prices will eat up farmers' profit margins and sow havoc in the countryside. The increase in fertilizer, fuel and pesticide prices during spring planting in 2021 so concerned officials that they gave out an ad hoc "one-time subsidy" of about $3 billion to compensate farmers for the rise in costs. Prices went up even more in the second half of 2021 and look like they will be high again in the upcoming spring planting season. 
China National Bureau of Statistics raw material purchase prices indexed to their January 2020 values.


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