Harvests allay food inflation concern

CHANGCHUN -- Spikes in food prices could be devastating as it may force policy makers to reverse actions being used to stimulate China's weakest growth in three years.

Soaring overseas grain prices and disasters in China's corn belt fed into such worries during the last three months. However, overseas prices have retreated with China expecting a bumper harvest.

A senior agricultural official in Jilin, the country's No 1 corn-producing province, said pest outbreaks and a strong typhoon in August has caused limited damage, with farmers expecting to harvest more this year.

Related reading: Pest 'affect little' on corn production

"There has not been a big impact on corn harvesting," said Ren Kejun, director with the Jilin provincial agriculture committee. Corn production is still set to reach a historic high because pest outbreaks have not spread and corn acreage grew by 275,000 hectares, he said.

In summer, China's wheat production grew 3 percent from a year earlier, with weather conditions good for growing winter wheat.

China is self-sufficient when it comes to wheat production and it produces 95 percent of the corn that is consumed. The increase in harvest means an adequate supply for the domestic market.

The pressure of imported inflation lulled too. Global grain prices climbed to record high in August after a worst-in-decades drought battered the US Midwest. Prices took a dive in September as American farmers' harvest soothed concerns of a supply shortage.

The US Agriculture Department said corn harvest was more than half complete by Sept 30, and the soybean harvest was 41 percent finished, much faster than normal pace.

In addition to supply recovery, high prices also cooled industrial and overseas demand for US crops, bringing down trading prices in the world's biggest grain producer and exporter.

Chicago Board of Trade corn futures for December delivery slipped 0.5 cents Tuesday to settle at $7.415 a bushel, down 10.7 percent from a historic high in August.

Chicago soybean for November delivery, pressured by higher than expected production, dipped over 10 percent in September, and hit a three-month low last Wednesday.

Declines in soybean prices will help to tame inflationary pressures in China, which has over 80 percent of its domestic soybean demand being relied on by imports.

"Overall, prices have reached stabilization in the short-term," said Ryland Maltsbarger, director with IHS Agriculture Services. He predicted that the South American crop output should weaken prices further at the end of 2012 unless weather conditions deteriorate.

Chris Narayanan, head of agricultural commodities research at Societe Generale, agreed, He said the market will remain bearish, as long as there is strong production in South America.

Analysts also predict that the US Federal Reserve's QE3, though creating downward pressures on US dollars, is not going to raise dollar-traded commodity prices.

"The weakness in Europe as well as slowing growth in China has negated this impact so far," Maltsbarger said.

Echoing the overseas grain price slump, a report from the Bank of Communications said food prices in China remained stable in September. It estimated the country's inflation gauge - CPI growth - fell to 1.8 percent in September and will stay low for the rest of 2012.

The low-inflation forecast gives China more leeway to join in global financial loosening, especially as the Chinese economy missed expectations of recovery in the third quarter.

China's central bank Tuesday pumped a record 265 billion yuan ($42.1 billion) into the financial market, suggesting that the government is beefing up measures to stimulate the world's second-largest economy.