Garlic market is hard to fathom: this year you can make 3,000 yuan per ton, next year you may lose money

The unfathomable "Suan Ni Hen": "bullish this year, bearish next year"

In 2015, China's total new garlic output was about 4.5 million tons. At this volume, prices are easily manipulated by capital

The state can regulate oil prices, but it is very difficult to regulate garlic prices. When garlic prices turn bullish, they are like a lion; when they turn timid, they are not even as good as a sheep.

A person long engaged in the garlic business in Jinxiang County, Shandong Province, told this reporter recently: the label of garlic as a "white tiger" is not exaggerated at all.

This year garlic prices reached a historic high. In Jinxiang, the world's largest garlic distribution center, the wholesale price around 2013 was as low as about 0.6 yuan per jin, while this year the price has reached above 6 yuan.

Bullish this year, possibly bearish next year. That is just how unpredictable garlic prices are.

Storing one ton of garlic can earn 3,000 yuan

A price monitoring report released by the Jinan Municipal Price Bureau on October 31 showed that on October 27, the average price of garlic in 10 farm markets in Jinan was 7.95 yuan/jin, up 3.92% from the previous week, up 7.43% from the same period last month, and up 89.28% from the same period last year.

With prices nearly doubling, garlic traders are full of enthusiasm. When interviewed by this reporter, Mr. Wang was in Yucheng Town, Yutai County, Jining City, Shandong Province, "collecting garlic." His "business" this time was to organize garlic stored in small cold storage facilities into large cold storage facilities.

He told this newspaper that this year's garlic market was particularly good. From the purchase price of around 4 yuan per jin when new garlic came in, to more than 6 yuan per jin for garlic coming out of cold storage now, 3,000 yuan can be earned per ton.

This reporter learned that about 1.8 million tons of garlic entered storage in Jinxiang County this year. If the market continues, by this calculation, garlic traders storing garlic in Jinxiang will have about 5.4 billion yuan in "paper profits" this year.

But this is only a theoretical estimate. Because when it comes to garlic prices, even industry insiders are gambling. This year you can earn tens of millions, but by next year losing tens of millions is also common.

This year's rise in garlic prices already showed signs in spring. A garlic trader in Jinxiang previously told this reporter that his cold storage capacity was 7,000 tons, and from buying garlic last year to clearing out garlic this year, he earned nearly 10 million yuan in total. At the time he said it looked like this year's garlic price rise was a trend.

His reason at the time was that due to weather conditions, this year's total garlic output would decline, and prices were expected to rise.

Half a year later, Mr. Wang told this reporter that the fundamental reason for this year's garlic price rise was still the decline in total output.

"A heavy snow before the 2016 Spring Festival was the key that started this year's garlic price rise. Coupled with extremely cold and unstable weather in winter, it caused a sharp reduction in new garlic output. The long-awaited bull market wheel came rolling in, again and again crushing the small-scale corrections and all resistance during the rise, and the market is still in an upward channel so far," Xu Benhe, a researcher at the Jinxiang Garlic and Chili International Trading Market, told this reporter.

But some people also analyzed for this reporter that garlic, as a condiment, does not have very high total demand, and output is also limited. Taking 2015 as an example, the national total new garlic output was about 4.5 million tons (some say about 4.6 million tons). At this volume, prices are easily manipulated by capital.

At the same time, considering that China accounts for more than 80% of global garlic exports, and given the currently high domestic prices, garlic lovers around the world can no longer afford Chinese garlic. According to data from commodities data company Mintec, China's garlic exports are at a four-year low. In the first seven months of this year, fresh garlic exports fell 12%, to 895,000 tons.

A seesawing trend

Xu Benhe reviewed the garlic price trends in recent years.

He said that in 2010, the late-stage purchase price in Jinxiang surged to more than 6 yuan per jin, while in July of the following year (2011), the lowest price during the purchase season was 0.7 yuan per jin.

Then in 2012, garlic prices welcomed another high point: generally April to June was the period when new garlic came to market. When the garlic was just dug that year, it was 1.2 yuan/jin. As news of reduced output spread and was accepted, prices soared by several mao per day, rising all the way to more than 4 yuan in late June. Market trading almost stalled, showing an abnormal situation of a price with no market.

"Although at the time large holders of old garlic spent more than 100 million yuan to continuously support the market, after a period of stalemate, what followed was a long bear market lasting a full year, and in the end the fate of stored garlic was a few mao per jin," Xu Benhe said.

The short life of the 2012 bull market was not unrelated to too much old garlic remaining, prices rising too quickly, and a lack of fundamental support for the market.

Xu Benhe analyzed it this way: "The garlic planting area in 2012 was smaller than in 2016. It is only in total consumption that this year is larger than 2012. Recent garlic consumption data shows that when prices are relatively stable, total annual garlic consumption grows steadily at 5%-8%."

According to Xu Benhe's review data on the recent market, in 2013 garlic prices returned to a trough, and the average garlic price in mid-July that year was 1.2 yuan per jin; in mid-July 2014, the average garlic price was 1.6 yuan per jin. For garlic farmers, both years were years of slight loss or breaking even, with few making a profit.

In mid-July 2015, garlic prices rose to 2.8 yuan per jin, and garlic farmers began to achieve long-lost profits. In mid-July 2016, the market returned to near historic highs, with prices reaching 5.4 yuan per jin; in early September, they reached a high of 6.15 yuan.

Another cycle?

As for next year, "if garlic can be bought at 2 yuan per jin next year, that would already be good," Mr. Wang predicted.

He has his basis - this year Jinxiang's garlic planting area is estimated to have increased by 20% to 30%, and in the absence of major weather changes, output will correspondingly increase in step.

This year's garlic has already been planted, and garlic farmers' costs have also risen by 20% to 30% year on year, while the planting area has also increased by 20% to 30%.

Mr. Wang said this is mainly because farmers saw that this year's garlic market was very good, so their enthusiasm for planting garlic increased again, and with that came higher planting costs.

"Garlic seed rose from about 3 yuan per jin last year to 6 yuan," Mr. Wang said.

But no one can say clearly how garlic prices will move next year. "One important factor is how this year's stored goods are sold off."

Xu Benhe also did an accounting for garlic farmers. "(Per mu on average) 1000+1540+490+1900+237=5167 yuan. There are still many things not calculated here, such as land preparation, pesticide spraying after the New Year, labor costs for foliar fertilizer, and the cost of topdressing fertilizer after the New Year, etc."

The 1,000 yuan refers to land contracting fees. "Now if you want to rent more than 50 mu of contiguous farmland, for slightly better soil quality, you cannot get it for less than 1,000 yuan."

The 1,540 yuan is for garlic seed; 490 yuan is for fertilizer; 1,900 yuan is for labor.

This year garlic prices rose, but labor costs did not rise. Next year they will rise back. "When harvesting garlic this year, many migrant workers who came to Jinxiang to seek opportunities were furious, because high garlic prices led them to misjudge the situation. They thought that since garlic was expensive this year, wages would certainly rise as well. As a result, too many people came, and after working themselves to exhaustion for a day, they could not even earn 200 yuan. It is estimated that next year prices will return to the original level. Total labor cost (per mu) is 1,900 yuan."

The 237 yuan is other miscellaneous expenses.

This year Jinxiang's garlic farmers had a bumper harvest. According to this reporter's survey this spring, a garlic farmer said at the time that last year he planted 7 mu of garlic, and the selling price in 2015 was about 2.5 yuan per jin. He could accept this price at the time, because planting one mu of garlic, not counting labor costs, cost about 2,300-2,400 yuan. At a yield of 2,500 jin per mu, garlic bulbs alone brought in three to four thousand yuan per mu. "There is also the money from selling garlic scapes."

The garlic he planted could sell for more than 4 yuan per jin this year. But as for next year, no one knows.