Corn prices rise due to drought, meat and egg prices follow, pushing up CPI
At the beginning of this year, Lu Yonghe, a farmer in Xingliu Village, Suo Town, Huantai County, bought more than ten tons of corn at 1.04 yuan/jin. However, he now somewhat regrets it.
“I regret not buying more at that time; now I cannot buy any even if I want to.” On August 19, when talking about corn prices repeatedly hitting new highs, Lu was quite helpless.
Since May this year, corn prices have risen continuously. Especially when the drought spread across the country, the upward momentum was extraordinary. However, when examining this round of corn price increases, the drought factor may have been magnified, and there is suspicion of speculation in the rise in corn prices.
It should be mentioned that the rise in corn prices has already transmitted to downstream sectors, with the breeding industry showing the most obvious impact. Currently, meat and egg prices are rising together, and egg prices have hit a new high in recent years, putting considerable pressure on CPI.
Many experts judge that August CPI may rise. Clearly, for ordinary citizens, the rise in corn prices is not good news.
A Historical New High
Farmer Lu Yonghe never expected that corn prices would rise so fiercely this year. Just after the Spring Festival, he bought more than ten tons of corn at 1.04 yuan/jin. At the time, he judged that prices would not be high later.
However, the trend of corn prices was beyond the expectations of most people, including Lu Yonghe. Starting in May, corn prices soared and kept setting new historical highs.
“We reviewed this year’s market trend.” Liu Dong, a corn analyst at Sublime China Information, said in an interview with this newspaper on August 19 that the lowest factory-gate price for corn this year was 1.06 yuan/jin, and the highest factory-gate price had reached 1.40 yuan/jin. Yet this span covered only 3 months, while corn prices rose by more than 30%. For grain prices, this increase is not a small figure.
Lu Yonghe said that even poor-quality corn delivered by traders now costs 1.35 yuan/jin. He had never even dared to imagine such a price before.
Why have corn prices risen like this? Liu Dong analyzed that due to the sluggish economy, demand for corn from the breeding and corn deep-processing industries in North China and East China decreased somewhat, causing corn prices to linger at low levels for a long time. Correspondingly, corn market support in Northeast China was stronger, with prices higher than in North China and East China, which caused corn from these places to begin flowing to Northeast China.
“Previously, corn from Northeast China flowed to our side; now the grain supply has reversed.” Liu Dong introduced that market supply in North China, East China and other places dropped sharply. Just at this time, severe drought spread in China, which strengthened expectations of reduced corn output. As a result, corn prices soared wildly.
Liu Dong told reporters that the reduction in market supply was the main reason for the sharp rise in corn prices this time. At the same time, farmers’ reluctance to sell was also very serious.
It is worth noting that drought became an important driver of this round of corn price increases. “We judge that even with severe drought, corn output will not decline greatly.” Liu Dong said that severe drought affected the market more from the psychological level.
An analyst at a futures company in Zibo said that in June and July, the main contracts of corn futures all rose to varying degrees, setting new historical high records, which also showed the market’s expectation of higher corn prices.
Several market participants said that whenever there is severe drought, some agricultural products always see price increases. Looking back afterward, the role of severe drought in product price increases is always magnified. In this round of corn price increases, some distributors hoarded corn, so the possibility of speculation in the rise in corn prices cannot be ruled out.
B Pressure on CPI
Regarding the later trend of corn prices, Liu Dong, a corn analyst at Sublime China Information, pointed out that, looking now, there is insufficient momentum for corn prices to rise sharply again, but a large decline is likewise unlikely.
In a little more than a month, new corn will be listed. “According to the pattern of previous years, after new corn is listed, corn prices will fall.” Liu Dong said that because corn prices have already hit a historical new high, the price of new corn is expected to be around 1.20 yuan/jin. In previous years, after new corn was listed, the price generally struggled to exceed 1.10 yuan/jin.
It is worth noting that although some views hold that the role of drought in this round of corn price increases has been magnified, it cannot be denied that continued drought will put considerable pressure on CPI. The academic community expects that the increase in August CPI will expand.
The latest data show that as of August 11, the drought-affected area of crops nationwide was 65.89 million mu, mainly distributed in Henan, Inner Mongolia, Hubei, Liaoning, Hebei and other places; 2.35 million people and 2.54 million large livestock had difficulty accessing drinking water due to drought, mainly distributed in Hubei, Henan, Inner Mongolia, Liaoning, Gansu and other places.
Agricultural experts introduced that during the drought period, most corn in China’s Huang-Huai, North China and Northwest regions was at the bell-mouth stage, and rice was at the booting stage, which is precisely the critical period for water demand, with rapid growth and large water needs. At present, the drought has already hindered the growth process of crops in some areas, and output will be affected.
Not only that, market participants also said that the GMO controversy that began last year severely affected China’s corn imports. These factors led some market participants to judge that corn prices may continue to remain high later.
As the Mid-Autumn Festival and National Day holidays approach, industry insiders analyze that entering August, with increased stockpiling demand for the Mid-Autumn Festival, meat and poultry egg prices are expected to rise slightly.
Some experts judge that in the second half of this year, agricultural product prices will generally remain stable, with little inflationary pressure, but new price-increasing factors such as grain price increases will increase and deserve continuous attention. New price-increasing factors may increase somewhat, which will also affect the CPI trend.
Official statements are also worth considering. After releasing the July CPI index, the National Bureau of Statistics said that recently heavy rain and drought weather have appeared in many places in China, affecting the growth of corn and other crops in some regions. Expectations of reduced crop output are conducive to pushing up their prices, and such price increases will also transmit to pork price increases in the near future. This means that continued severe drought will put pressure on CPI in the coming months.
What performance will corn prices show in the future, and what impact will they bring to the market? This newspaper will continue to follow this.
C Meat and Eggs Follow the Rise
The effects of the sharp rise in corn prices have already appeared, with the breeding industry most directly affected.
Lu Yonghe introduced that compared with the beginning of the year, the price of feed per ton has risen by about 200 yuan. “The cost of raising pigs is higher.” He said that after costs increased, the purchase price of live pigs also rose. This year, when live pig prices were at their lowest, they fell to 5.2 yuan/jin, and now they have risen to 7.3 yuan/jin.
According to Lu Yonghe’s description, the rise in live pig prices kept pace with the rise in corn prices. In the terminal market, pork prices also rose.
“It has already risen several times.” On August 19, the owner of a chilled fresh meat specialty store in the central urban area of Zhangdian said that the price of lean meat has now risen to 13.5 yuan/jin, about 2 yuan higher than this year’s lowest price.
“The inventory of live pigs is not large.” Lu Yonghe said that now pig traders call him every few days to ask whether there are pigs ready for market. This shows that market supply is not sufficient, while corn prices remain high, so pork prices are unlikely to fall in the short term.
Not only pork, but the rise in egg prices can also be called crazy. On the 19th, an egg dealer at a farmers market said that the current selling price was 6.2 yuan/jin, while a week earlier the price was still around 5.6 yuan/jin. “Egg prices have not been cheap this year.” The dealer said that last year at the Mid-Autumn Festival, egg prices hit a new high in recent years, reaching around 5.8 yuan/jin. This year, egg prices once again hit a new high. He analyzed that the reason egg prices rose rapidly was, first, because the Mid-Autumn Festival was approaching and market demand increased greatly; second, driven by the rise in corn prices, farmers’ breeding costs increased significantly.
The person in charge of a feed factory in Weifang said to this newspaper that previously, among the feed raw materials they produced, corn accounted for the largest share; now the proportion of corn is gradually decreasing while the proportion of wheat is increasing. “If we still followed the previous ratio, we would lose money.” He said that after increasing the proportion of wheat, products can achieve thin profits.
It is worth noting that corn prices and wheat prices have once again inverted. On August 18, a relevant person from a flour production enterprise in Zibo said that the purchase price of wheat was around 1.25 yuan/jin.
In the second half of 2012, wheat prices rose sharply. By the end of 2012, the wheat price exceeded 1.20 yuan per jin. The phenomenon that wheat prices were lower than corn prices for many years was reversed. However, in only 2 years, wheat prices were once again surpassed by corn prices.