Announcement

Collapse
No announcement yet.

China - Report: Since March food prices have increased significantly - June 3, 2020

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • China - Report: Since March food prices have increased significantly - June 3, 2020


    How to view the recent increase in food prices?


    June 03, 2020 21:00




      
    Text |
    Song Xiao Jiang Chao Macro Bond Research

      summary
      Since March, domestic and international food prices have risen sharply. In order to give priority to ensuring the security of domestic food supply, many countries have successively issued policies restricting food exports, triggering market panic. Since March, foreign grain prices have risen significantly, of which the cumulative increase in rice prices has reached 33.5%, while the short-term increase in wheat has also reached 16.5%. In addition to the increase in international food prices, my country's food prices have also increased significantly. Among them (2073, 14.00, 0.68%) prices of corn ( 2072 , 13.00 , 0.63% ) and soybeans(4362, -87.00, -1.96%) have increased by 8.2% and 10.3% respectively, and the price of rice has also increased by more than 10% since April.
      Domestic self-sufficiency and weak international linkage. The main reason for the recent rise in domestic grain is driven by the rise in international grain prices. At the same time, grain hoarding in some areas during the epidemic has led to a huge increase in demand.

    But in fact, rice, wheat, and corn, the main domestic grains, are basically self-sufficient. Specifically, rice and wheat together account for more than 70% of my country's ration consumption, while corn and soybeans are important grain raw materials. The supply of wheat and rice in my country is basically self-sufficient. In 2019, the imports of wheat and rice accounted for only 3% and less than 2% of domestic consumption, respectively. my country's corn has a certain output gap, but its dependence on foreign countries is not high, and the supply of soybeans has always been dependent on imports for a long time, and the proportion of imports is stable in the high range of 80%-90%. The domestic wheat, rice and corn prices are not strongly linked to international prices. From the historical data, the domestic and international price trends of rice and wheat are very different. The international grain prices are mainly related to global production and inventory, and the domestic ration prices are mainly related to the national grain purchase policy. The trend of domestic and foreign spot prices of corn is generally the same, but the specific trends are quite different. In contrast, domestic soybean prices closely follow changes in the international market. Therefore, despite the tensions in the international supply chain due to the epidemic situation, my country's future grain prices other than soybeans will depend more on domestic conditions.
      Supply side: The impact of insect disasters is small, and the surplus grain reserves are sufficient. Insects such as locusts and Spodoptera frugiperda are potential threats to my country's food supply this year, but the impact on food output this year is expected to be relatively limited. The invasion of Spodoptera frugiperda was discovered for the first time in my country in January 2019, and the source of Spodoptera frugiperda is large this year, and the time for moving northward is advanced. However, the current national defense control system is relatively complete, and chemical pesticides are still effective. It is expected that the possibility of causing large-scale insect pests is not high. The temperature and humidity in most areas of my country are basically unsuitable for the breeding of desert locusts, and the possibility of large-scale outbreaks is low. At the same time, locusts are unlikely to enter the Himalayas. At present, my country has made sufficient monitoring and control preparations, and it is expected that this year the desert locust will not pose a serious threat to my country's food production. In addition, from the perspective of stocks, the reserves of surplus grain other than soybeans are relatively sufficient. In 2019, the wheat stocks consumption ratio (inventory/consumption) reached 91.1%, the rice stocks consumption ratio exceeded 85%, and the corn stocks also met the half-year consumption scale. The soybean stocks consumption ratio is only 7.8%, and domestic consumption is mainly dependent on imports. It is expected that there will be greater uncertainty in future supply. Overall, the domestic grain supply side is relatively stable this year.
      Be alert to the general rise caused by the release of water. But stable food supply does not mean that there will be no sharp price increases. Grain planting needs a cycle, and the current price increase and rising demand will not bring about an immediate increase in supply. Therefore, in history, every sharp increase in the rate of currency growth often triggers subsequent increases in food prices. For example, after the subprime mortgage crisis, the growth rate of M2 in the United States climbed rapidly, and then in the second half of 2010, the prices of international staple foods such as wheat, rice, and corn all rose sharply. In this round of unprecedented efforts to release water in the United States, M2 in April has soared to 18.0% year-on-year. It is expected that international food prices will also rise sharply in the future. Although my country's domestic grain prices are not strongly linked to the international market, in order to cope with the impact of the epidemic and stabilize economic growth this year,

    my country's credit expansion has also accelerated significantly. In April, the M2 growth rate continued to rise to 11.1%. In the past, my country's broad currency growth rate also tended to rise after a sharp increase in food prices. If the growth rate of M2 continues to rise in the future, my country may also experience a rise in food prices due to a sharp increase in currency growth.

    At the same time, during the period of rising food prices, most food prices will also rise, and the increase will be greater than the price of food, and non-food prices will also tend to rise moderately. Because the increase in food prices caused by high currency growth is more likely to be a general increase in commodity prices in the future, resulting in greater inflationary pressures.



    https://finance.sina.com.cn/money/fu...k5104438.shtml
Working...
X