The impact of agricultural policy adjustments on agricultural product prices requires close attention.
The external economic environment remains unsettled.
On December 17, 2015, the Federal Reserve announced a 25 basis point rate hike, its first increase in more than 9 years. Since the financial crisis at the end of 2008, the ultra-low zero interest rate policy that had been pursued came to an end, marking the full entry of the U.S. economy into a new period of healthy growth. Although the Federal Reserve's decision to raise rates was fully in line with mainstream market expectations, and the roughly two years of prior market speculation had already absorbed most of its impact, this does not mean the external economic environment for the agricultural futures market has become calm.
Over the past year, domestic and international economic growth continued to slow. Under conditions of slowing economic growth, market demand for agricultural products, especially bulk agricultural products, has declined, and the market weakness will be difficult to recover from in the short term. Prices of wheat, corn, soybeans and their downstream products are unlikely to perform well. However, sudden economic events and other factors will still provide themes and opportunities for large fluctuations in agricultural futures prices. After the Federal Reserve decided to raise rates, price changes in commodity markets, especially agricultural product markets, were not significant. At the same time, the Argentine government lowered the soybean export tax rate, causing international soybean prices to fall, but this lasted only one day.
Argentina is a major agricultural country in South America, and bulk agricultural products such as soybeans, corn and wheat occupy an important position in its export structure. Argentina's average annual soybean output is about 55 million tons, making it the world's third-largest soybean exporter; corn output reaches 25 million tons, about half of which is used for export, making it the world's second-largest corn producer and exporter. In the past two years, Argentina's economic growth has been sluggish, and combined with government measures such as raising agricultural export taxes, foreign exchange controls and export restrictions, the enthusiasm of agricultural producers has declined. Exporters hoarded goods and were reluctant to sell, causing export volumes to plummet. According to estimates by Argentine media, the value of soybeans from previous seasons currently hoarded by the agricultural production and export sector is expected to be 8 billion U.S. dollars.
At present, major global economies are introducing various policies and measures for economic growth, which will have a profound impact on the future trends of each economy and the global economy, and the agricultural futures market will also be deeply affected by these policies and measures.
From the perspective of the international market, first, the global economic recovery is falling short of expectations. Although the U.S. economic recovery has been relatively stable and has entered a rate hike cycle, international institutions such as the World Bank and the International Monetary Fund still do not hold a favorable outlook on global economic growth expectations. Therefore, further strengthening of expectations for U.S. dollar appreciation will cause sharp turbulence in global bulk commodity prices, stock markets and foreign exchange markets. Second, China, Europe and others are still continuously cutting interest rates. There are large differences in the economic conditions of major global economies. If economic growth in these economies shows long-term low-level fluctuations, it will lead to a decline in global trade flows, and the market's demand capacity for agricultural products will also weaken. Third, the economic policies of Japan, India and other countries are adjusted from time to time, which will stimulate frequent fluctuations in agricultural product prices.
As for the external economic environment of the domestic agricultural futures market specifically, under the major premise of slowing economic growth, agricultural product prices will more often not rise sharply, and the possibility of maintaining low-level stable operation is greater. At present, the domestic economy is still at a critical stage of structural adjustment, and traditional industries are not only reducing inventory but also cutting capacity. Although under greater downward pressure, policies such as stabilizing growth will be further strengthened, and monetary policy will loosen to a large extent and gradually move toward easing, some market participants believe that low-speed GDP growth has become normalized, industrial demand for agricultural products has decreased, and easy monetary policy will be difficult to take effect in the short term.
At the same time, judging from the current main imported varieties and quantities, the prices of oils and oilseeds are already completely dominated by the international market. The annual import volume of 80 million tons of soybeans, as well as the rapidly growing imports of soybean oil, soybean meal, rapeseed, rapeseed oil, corn, sorghum, barley and others, will further weaken China's pricing power and initiative over these agricultural products. The characteristic of Chinese agricultural product prices following international market fluctuations will also become more obvious.
China's agricultural policy adjustments enter a peak period
After all, the external economic environment is not the main factor determining rises and falls in agricultural product prices. The internal cause determining the long-term trend of agricultural product prices is still the market supply-demand relationship. In 2015, due to declining demand and excess supply, global agricultural product spot and futures prices continued to decline, and many agricultural futures prices fell sharply again after being halved. At the same time, the "three highs" phenomenon in China's grain market, namely high output, high procurement volume and high inventory, deserves particular attention. How these problems will be solved in the future and how agricultural policy will be adjusted will both have a major impact on agricultural product prices.
The reporter learned from the National Bureau of Statistics that in 2015 China's total grain output reached 621.435 million tons, an increase of 14.408 million tons over 2014, a growth rate of 2.4%, achieving the 12th consecutive year of growth. An analysis of the reasons for the increase in China's total grain output shows that it was mainly caused by an increase in sown area and higher yields per unit area. In 2015, the national grain sown area was 1,700.107 million mu, an increase of 9.269 million mu over 2014, a growth rate of 0.5%; the national average grain output was 365.5 kg/mu, an increase of 6.5 kg/mu over 2014, or 1.8%. Continuous increases in grain output ultimately led to high inventories in China's main grain-producing areas. For example, the central government's grain inventory in Heilongjiang has exceeded 100 million tons, setting a new historical high.
During market interviews, the reporter found that in 2015 the spot and futures prices of major agricultural products such as soybeans, corn, sugar and cotton in the international market were all suppressed by excess supply, and futures prices of soybeans and other agricultural products plunged. More notably, because China's agricultural product prices are higher than international market prices, China's agricultural product imports are enormous. On the one hand, this intensifies the difficulty of selling Chinese agricultural products, increases market supply, enlarges inventories and hits agricultural product prices; on the other hand, it makes the development of domestic agricultural industries difficult, thereby causing relevant departments to attach importance to agricultural industry development. Major adjustments have appeared in China's agricultural policies, which will cause changes in the institutions participating in the agricultural futures market.
At present, there is still a large gap between the competitiveness and price level of China's agricultural products and those of the international market. The current situation of large imports of low-priced agricultural products is not easy to change, the international market still has a relatively large impact on domestic agricultural products, and domestic agricultural policy adjustments have entered a peak period. Judging from many recently issued agricultural policies, agricultural production methods, agricultural planting structures and price formation mechanisms are all being adjusted frequently.
The recommendations of the 13th Five-Year Plan put forward some policies, such as conducting pilot projects for crop rotation and fallow land, and implementing the strategy of "storing grain in the land and storing grain in technology," which in effect sent a signal to appropriately adjust grain output. Chen Xiwen, deputy head and director of the Office of the Central Rural Work Leading Group, pointed out that imports of barley, sorghum, DDGS, cassava and others as substitutes for corn have hit domestic corn sales, resulting in unsold stockpiles. This is a prominent problem currently facing China's grain market. Therefore, for the Chinese government and farmers, the issue that needs to be considered is what measures to take to regulate domestic grain prices so as to curb the arbitrary growth of imports of corn substitutes.
In 2014, China launched pilot projects for target price subsidies for soybeans in Northeast China and Inner Mongolia and for cotton in Xinjiang. In 2015, on the basis of summarizing the experience of the target price reform pilot projects, relevant departments proposed continuing the minimum purchase price policy for rice and wheat, while adjusting market policies for non-staple food agricultural products such as corn. Starting with the listing of newly produced corn in 2015, relevant departments still implemented a temporary purchase policy in the Northeast region and significantly lowered the corn purchase price, which at one point caused a "cliff-like" drop in domestic spot and futures corn prices and touched on issues such as farmers' grain-growing returns. In addition, starting with the listing of newly produced rapeseed in 2015, relevant departments decided to basically cancel temporary storage purchases of rapeseed. The rapeseed purchase price in production areas fell by nearly 2,000 yuan/ton compared with the price at the time of listing in 2014. The impact of policy adjustments on agricultural product prices can be seen from this.
The financial attributes of agricultural product prices need attention
During the period of rapid global economic growth, the financial attributes of agricultural product prices were very strong. A large amount of capital entered the agricultural futures market, pushing up agricultural product prices and causing a relatively large divergence between price and value. At present, under the sluggish overall economic environment, global agricultural product prices are to a large extent determined by their own supply-demand relationship, but the impact of capital on agricultural product prices still cannot be ignored. The financial attributes of agricultural product prices have not disappeared; they are merely expressed more quietly.
Over the past year, due to tight capital, many enterprises in the agricultural product industry chain struggled to survive. On the surface, agricultural product prices were caused by insufficient demand, but in reality they were caused by insufficient capital supply. What deserves market attention is that when the reporter from Futures Daily communicated with many investment institutions, the reporter learned that in 2015 many investment institutions treated agricultural products as macro hedging targets. On the one hand, they invested heavily in stock markets and other markets; on the other hand, they heavily shorted the agricultural futures market. A strong new phenomenon of "attacking capacity and attacking excess profits" exists in the agricultural futures market. Therefore, for the capital market, 2016 will still be a year of turbulence. There will be many events such as Federal Reserve rate hikes and China's interest rate and reserve requirement ratio cuts, and the financial attributes of agricultural product prices may be expressed somewhat more strongly.
The agricultural futures market will achieve long-term development
With the industrialization and systematization of listed varieties in the domestic agricultural futures market, more and more agriculture-related enterprises are participating, and the price-guiding role of the agricultural futures market is becoming more and more obvious. The development of the agricultural futures market has gained market recognition and support. It is estimated that the agricultural futures market will be more active in 2016.
In 2015, the Central Committee of the Communist Party of China and the State Council issued the "Several Opinions on Increasing the Intensity of Reform and Innovation and Accelerating Agricultural Modernization" (hereinafter referred to as the "Opinions"). The "Opinions" emphasized deeply advancing agricultural structural adjustment, innovating agricultural product circulation methods, developing agricultural product futures trading, developing new varieties for agricultural product futures trading, and coordinating the use of both international and domestic markets and two types of resources. This is of great significance to the long-term development of the domestic agricultural futures market and points out the direction for the development of the domestic agricultural futures market. The "Opinions" gave the agricultural futures market new content and missions. In accelerating the modernization of agriculture with Chinese characteristics, the agricultural futures market has broad space to serve.
In order to improve the degree of marketization of agricultural products, it is necessary to vigorously develop agricultural product futures trading, and this in turn requires the government and management departments of various industries to streamline administration and delegate power, leaving market matters to the market. At present, some industry management departments have abolished "industry rules that do not allow state-owned enterprises and others to participate in futures trading," and some departments have begun encouraging grain enterprises to use the futures market to avoid operational risks. More enterprises in the agricultural product industry chain are willing to use futures tools to serve their production and operations. With agricultural industry clients participating relatively actively in futures trading, the capacity of the agricultural futures market will expand, the prices formed by the market will be more representative, and their guidance for the development of the domestic agricultural industry will also be stronger. A flexible agricultural product market mechanism will take shape.
After more than 20 years of development, rapeseed, rapeseed oil, rapeseed meal, soybeans, soybean oil, soybean meal, corn, corn starch and other grains and processed products already listed in the domestic agricultural futures market have formed a relatively complete industry chain. Production, circulation and trading enterprises in the industry chains of these varieties have all participated in the futures market on a large scale and effectively used futures tools to provide risk control guarantees for enterprise operations.
At present, in agricultural product futures markets such as sugar, cotton and wheat, many large and medium-sized agricultural enterprises are very active. With the emergence of new types of cooperative organizations in the agricultural production sector, the foundation for the long-term stable development of the agricultural futures market will be more solid. In the future, the product system of the domestic agricultural futures market will become more complete, the trading scale will reach a new level, and market investment opportunities will also increase considerably.