Foul weather is now a major factor to trigger concern over grain shortage. In recent months， frequent occurrence of such natural disasters as snow storms， floods， and drought has exerted negative impact on grain production of several agricultural countries. North China and Huang Huai area are still plagued by drought. Statistics from the Ministry of Agriculture show that by February 4th， the drought-hit farmland of winter wheat in eight provinces such as Hebei reached 96.11 million mu， or 35.1% of the total planting area. The recent bitter cold and snow storms in the US breadbaskets， eastern and western region， have hindered the growth of winter wheat. Ar-gentina is often hit by drought， and cyclone Yasi battered Australia…Concern caused by adverse weather has pushed up global grain price and has directed capital fl ow into farm products. T e current capital flow into farm products merely influences the fundamentals rather than the general market trend， but experts warned off high volatility， which will lend momentum to a further spike in grain price.Adverse weather strains the farm product marketDue to imbalanced fundamentals for many farm products， global stockpile of farm products neared a historic low in 2010. Despite the current suffi cient supply of maize， soybean and wheat， emerging markets would have greater demands， and only fine weather in major breadbaskets could ensure restock to avoid another round of grain price hike in 2011， an analyst from Rabobank pointed out in its annual outlook report.But adverse weather continues this year. In January， Brazil and Argentina， soybean exporters of farm products in the Southern Hemisphere among other countries suffered from fl oods and drought respectively.The drought-hit northern regions of China have not seen effective precipitation yet. Sine last October， the producing areas of winter wheat in North China have low rainfall and eight provinces including Hebei， Shanxi， Jiangsu， Anhui， Shandong， Henan， Shannxi and Gasu were all aff ected by lasting drought， which harmed wheat growth and tiller in the post-dormant period and posed a severe threat to production of summer grain. The Ministry of Agriculture on February 4th initiated level-2 drought relief.Analysts regard that extreme weather has worsened tight supply of farm products. Rabobank has lowered its forecast on Argentina’s corn and soybean output. T e continuous severe weather in South America would drive up soybean price， said Qin Jun， an analyst from Guotai Junan Securities. “As major soybean exporters with a share of 42% in the world’s total soybean export， Brazil and Argentina play a critical role in global soybean trade，” added Qin.Although the abnormal weather in January had modest eff ect on domestic production of bulk farm products， prices of such farm products as wheat， rice and soybean meal rebounded to the earlier high level. “Due to the good harvest of farm products in 2010 and the predication made by the US Department of Agriculture for tight supply of farm products across the world， extreme weather has fueled anticipation for price hike in farm products，” said Qin.Capital fl ows into farm productsRemarkably， concern over grain shortage sends up both price and supply of farm products in the market. Data indicate that the strong gluten wheat features grew nearly 5% in the Zhenzhou Commodity Exchange in January， when the open interest increased significantly for the first time during fi ve months. Before the Spring Festival holiday， the open interest for 12 contracts rose 40，000 over the previous year， adding to the total amount of 140，000， the same level as last July just before the strong gluten wheat features showed an upward trend. At that time， strong gluten wheat features went up nearly 9% in two months， and the open interest jumped 150，000.Besides， prices of such farm products as cotton， natural rubber and white sugar also rebounded to the previous high level. T e natural rubber features in the Shanghai Features Exchange rebounded in two straight months after a regulation on open interest in Last November， and with an increase of 90，000， the total open interest stood at above 300，000 in January.Actually， the international market saw sharper price hike than the domestic market. According to the monitoring data from the Ministry of Agriculture， during January 10th to 14th， the average corn features price closed at USD 247 per ton in the Chicago Mercantile Exchange， up by 61% over the previous year， and the average raw sugar price in the International Sugar Council saw a year-on-year increase of 15% to USD 653. Among the products monitored， cotton witnessed the sharpest hike， a leap of 116% than one year earlier.Data from the Commodity Features Trading Commission (CFTC) also show that the fund positions of the options on features of the major farm products such as soybean and wheat hit an all-time high. Fei Zhonghai， Assistant to General Manager of COFCO held that the enhanced financial attribute of the bulk commodities due to excess liquidity in the international market， plus adverse weather and frequent occurrence of disasters across the world caused the commodity market fund， the vane of the market， to flow into the low-value agricultural sector， which then led to price hike.T e current capital fl ow into farm products merely influences the fundamentals rather than the general market trend， but experts warned off high volatility， which will lend momentum to a further spike in the grain price.Three Factors aff ecting China’s grain priceExperts hold that China is making an in-depth growth in the agricultural sector after having managed to feed its people. At present， three factors inevitably aff ect China’s grain price.Firstly， shifts of surplus rural labor force and capital fl ow into the domestic agricultural production have pushed up cost， which is the key factor for price hike in farm products. China is embracing the “Lewis turning point”— that is， in the course of industrialization， with less surplus rural labor force moving to non-agricultural sectors and outgrowing labor force demand over supply， China has to off er higher wages in a bid to ensure suffi cient supply of labor force， said Tao Dong， Chief Asian Economic Analyst of United Bank of Switzerland. “Rising labor cost in the cities will spur the opportunity cost of labor force in the rural areas”.Secondly， uncertainties threatening grain production mount. During the 11th Five-Year Plan period， China’s grain yield increased for fi ve years in a row and exceeded 500 billion kilograms in four consecutive years. Some experts interviewed pointed out that the major areas of higher grain yield were almost located in North China， where water resource was scarce. But for South China with rich water resources， accelerated industrialization and urbanization had signifi cantly decreased comparative returns for grain production and had caused outfl ow of such factors as land and labor force away from the agricultural sector.Thirdly， Chinese people are demanding a sound diet pattern rather than just enough food supply. According to China Securities， in future， people will consume more poultry， egg and meat， and less grain. Referring to the food consumption history of developed nations and China’s dual economic structure， China’s food consumption is shifting from the post-period of sufficient supply to the initial stage for upgrading.As poultry， egg and meat products will use up more crude feed， feed shortage is likely to emerge， said Jeroen Leff elaar， Head of the Meat and Feed Department of Rabobank when interviewed in Shanghai.It was proposed to increase effective supply of farm products in the central rural work conference and the No.1 File for the fi rst time focused on irrigation construction. Some experts hold that agriculture will gain unremitting attention， and the domestic grain inventory/consumption ratio runs high， China will therefore not be threatened by a grain crisis in spite of speculation of such Chinese elements as severe drought in the international market.
