Capital hits the bull market of agricultural products

In 2010, the price increase of agricultural products “you sing and strike me on stage” and an “up” word deservedly to be the annual Chinese character. From vegetables to food, from green beans and garlic to apples and potatoes, from soybeans and cotton to downstream edible oils and textiles, various agricultural and sideline products have adopted relay bars for price increases and staged a collective revelry of price increases. Especially under the chase of domestic and foreign capital, the prices of agricultural products have increasingly deviated from the original trajectory.

How long will agricultural prices rise? In the anti-inflation environment, soaring prices triggered intensive government regulation. The just-concluded Central Rural Work Conference proposed that in 2011, we must vigorously improve the circulation of agricultural products and market regulation, and strive to maintain a reasonable level of agricultural product prices.

Surging wave of agricultural product prices

Weather disasters, rising costs, hot money speculation, international factors... Who created the madness on the table? The answer is different. What "Zhang Wuben's health theory has raised the price of mung beans" and what "distribution companies have convened for price increases" have led to some controversial arguments. It seems that the "ghost" pushing up the price of agricultural products is everywhere.

“It is very difficult to buy vegetables now, and it is not local. With the transportation cost, the price of vegetables is very high.” In March, Mr. Qin, who lives in Xuanwei, Yunnan, said with some frustration. Most people, including Mr. Qin, may not have thought that in the 2010 agricultural market, the price of vegetables will set off an uproar.

Since the end of 2009, the price of vegetables has been rising all the way, and the rain and snow at the beginning of the new year have once again “increeded”. According to the law of previous years, the price of vegetables will apparently drop after the Spring Festival, but this year it has remained high and has become the primary factor in pushing up the CPI throughout the year.

At the same time, a major drought that spread to more than a dozen provinces and regions across the country has also affected the nerves of the market. Since the beginning of autumn in 2009, the drought has begun to plague from the southwestern region. Yunnan Province has experienced drought once in 60 years. The degree and scope of the drought are rare in history.

Since Guangxi and Yunnan are the main sugar producing regions of China, the output accounts for 80% of the country, and the price of sugar has been rising all the way. Although the country continues to put reserve sugar into the market, the cut in sugar production is a foregone conclusion. It is difficult for sugar prices to get out of the “more and more expensive” cycle. What is even more unexpected is that in the bull market of bulk agricultural products in the second half of the year, sugar prices will be staged with a wave of “sugar ancestors”. The price of sugar exceeded 6,000 yuan/ton in October, hitting a new high in the past 20 years, and the sugar price in the futures market was more than 7,000 yuan/ton.

However, what really sets off this year's frenzy of agricultural product prices is garlic, mung beans and other seemingly insignificant small varieties. "Garlic you yo", "beans you play" suddenly become synonymous with slightly escaping colors. The retail price of garlic per catty rose up to almost 10 yuan, even more than the price of pork, even the waiters in the restaurant are not willing to give a few more garlic to customers. The price of mung beans has risen to a maximum of 10 yuan and a pound, and the consumption of hot drinks such as mung bean soup has become a "luxury product" for ordinary people.

Compared with small-scale agricultural products, food prices started from the prices of rice and corn at the beginning of the year, showing a turnaround of one species after another. However, the increase in food prices has aroused widespread concern in the society, and it has to start with the "rush wave" of summer grain.

In 2010, the summer grain output was reduced by 0.3%. This seemingly tiny figure is enough to be amplified by the market. In May, the main winter wheat producing province is about to enter a large harvest period of summer grain, and the expectation of the reduction of summer grain has triggered people's concern about the sharp rise in food prices. In July, the acquisition of summer grain began to take off. Some foreign-funded enterprises such as Yihai Kerry and Louis Dreyfu also entered the domestic grain procurement phase one after another. Reduced production, reluctance to sell, and rush to buy, the multiple complex situation caused the market price of wheat is significantly higher than the purchase price of the city.

In September, cotton prices began to be a “wind vane” for agricultural product prices, and domestic cotton stocks, futures, and stockpiling prices rose sharply. The national cotton price index (level 328), which represents the domestic cotton price level, reached RMB 220,032 per ton on September 27, setting a new record for the past 10 years. In the futures market, Zhengmian gained strength after breaking 18,000 yuan/ton in early September. 600,000 tons of State Reserve cotton began to sell from August 10, to September 25, discount 328 cotton prices rose from 18,318 yuan / ton to 24,556 yuan / ton, the cumulative increase of 34%.

The price increase is far from over. On November 3, the price of Zhengzhou Cotton Futures contract in recent months exceeded the 30,000 yuan mark. In just three months, the cotton price has renewed its highest record in 10 years and finally completed a “magnificent” doubling.

“At present, the price of agricultural products is the first factor in pushing up costs,” said Yan Pengfei, inspector of the Department of Market and Economic Information of the Ministry of Agriculture. Taking the increase in vegetable prices in winter and spring, for example, the contribution of disastrous weather to price increase is 50.8%, the contribution of labor, transportation and operating costs increase is 31.7%, the contribution of urban and rural residents' consumption increase is 12.7%, and the fluctuation of individual product production The contribution of other factors such as 4.8%.

Li Guoxiang, a research fellow at the Institute of Rural Development of the Chinese Academy of Social Sciences, believes that, given the good relationship between supply and demand for most agricultural products, the trend of increasing prices of agricultural products since 2003 has not been effectively curbed. The most basic reason is cost promotion. Costs include production materials, Labor, land costs, and opportunity costs.

Reporters often heard in the interview that both producers and distributors of agricultural products complained that due to rising costs, they did not really share the benefits of agricultural product price increases.

“Right now food prices have stabilized, but the cost of growing grain is still rising.” Shan Yuheng, a major grain grower in Heilongjiang, said that prices for chemical fertilizers and pesticides are expected to begin to appear again. The price of phosphate fertilizers rose by 10% to 20% compared to the spring of this year. The price of urea rose from 1,600 yuan/ton last year to 1,900 yuan/ton.

In Beijing's Xinfadi Market, a merchant from Hengshui, Hebei, said that the price of oil is rising and the wages of workers are rising. Last year, everyone’s monthly salary was only 1,200 yuan, and this year it rose to 1,500 yuan. Compared to 2008, the cost of vegetables for every 667 tons of vegetables from Hengshui has increased by more than 200 yuan.

"Now the cost of circulation has grown too much, and oil prices, labor costs, and packaging costs are all rising," said Zhao Erlie, general manager of Beijing Baliqiao Agricultural Product Wholesale Market. It is understood that the current cost of agricultural product circulation in China is about three times the world average.

Zhang Hongyu, director of the Department of Industrial Policy and Regulation of the Ministry of Agriculture, believes that the cost of food production has been dominated by material costs, and has gradually been driven by factors such as labor, land, materials, and service costs. From 2007 to 2009, the prices of rice, wheat, and corn rose by an average of 7.1%, and the total production cost increased by 11.7% annually. The average annual increase in labor, land, material, and service costs was 11.3%, 29.2%, and 15%, respectively.

National securities analysis also believes that input products including diesel, fertilizers, pesticides, agricultural machinery, etc. can be used to control agricultural and peasant payment costs through subsidies, but the increase in labor costs is difficult to solve with subsidies. From the changes in minimum wage rates in various provinces and municipalities across the country in 2010, it can be seen that personnel costs have increased by a large margin ranging from 80 yuan/month to 220 yuan/month, with the highest increase exceeding 40%.

Capital behind the price increase

Although it is difficult to calculate how much “hot money” has flowed into the agricultural product market, from the point of view of electronic trading and futures markets, hot money pushing up prices of agricultural products has been found. The reporter's investigation into the agricultural product electronic trading market found that a large number of people who had previously plunged stocks began to “fried vegetables.” Some of the entities in the electronic trading market were not engaged in agricultural production and operation companies, but were speculators, which led to sharp fluctuations in the prices of some agricultural products. Some insiders in the futures industry stated that the agricultural product futures prices for agricultural products and some listed transactions have risen significantly since September, and the amount of funds flowing into the market over a period of time has been relatively large, which has caused the market to overheat.

The National Development and Reform Commission had analyzed in July that it was judged by various factors. If there were no unexpected incidents or abnormalities, the consumer price index in the second half of the year would run around 3%, and it would fall somewhat after October.

The fact is that since the second half of the year, the CPI has continued to refresh, with 3.6% in September, 4.8% in October, and 5.1% in November. People can not help but ask, what happened "emergency and abnormal situation"?

It is not difficult to see the underlying capital strength behind the price increase. Zhou Wangjun, deputy director of the price division of the National Development and Reform Commission, believes that this increase is not caused by a shortage of supply, but rather caused by excess liquidity, when compared with the price increase in 2004 and 2007.

In the first half of the year, due to the introduction of stringent control policies in the property market and the downturn in the stock market, people speculated that the funds in the property market and stock market will not be turned to the agricultural product market. In the second half of the year, global liquidity is rampant, especially as the United States implements a quantitative easing monetary policy. Where does so much money go?

A garlic investor in Jining, Shandong, told reporters that according to what he learned, during the week from June 24 to June 29 this year, 680 million yuan was poured into the garlic township of Jinxiang, resulting in one kilogram of garlic. The price rose 8 cents a day.

In Beijing's Xinfadi Agricultural Products Wholesale Market, a merchant from Shandong Jinxiang told reporters in May that there were many people who had fried garlic with garlic, and some had earned more than RMB 10 million last year. Because he did not have so much money and a cold store for storage, he did not hoard garlic.

Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of the office, wrote a few days ago that small varieties such as mung bean and garlic are increasingly becoming targets of hot money speculation in addition to fluctuations in production volume, causing them to increasingly exhibit the attributes of financial products.

The soaring cotton price is also considered to be related to the speculation of hot money. At the beginning of this year, the Zhejiang Chamber of Commerce in Xinjiang estimated that at least 10 billion yuan of Zhejiang civilian capital had been withdrawn from Shanxi coal mines and domestic real estate to Xinjiang cotton. In the second half of the Xinjiang cotton harvest season, another media report said that the private speculation of cotton swarms brought large amounts of money into the Xinjiang cotton market.

Li Guoxiang said that due to the price of bullish agricultural products, the current capital has entered the agricultural sector to speculate, which easily leads to an increase in price fluctuations. In the past, the annual increase in the prices of agricultural products did not generally show up until September. Many agricultural products are now rising in price, which is related to the speculation of capital.

Liu Yuanchun, deputy dean of the School of Economics at Renmin University of China, believes that the current orientation of capitalization of agricultural products is more serious and has changed the purely consumption attributes of the past. This kind of capitalization orientation directly leads to a strong leverage effect on the price formation mechanism of agricultural products. A price increase will immediately cause a sharp increase, which will bring panic to the market and cause the original balance between supply and demand to become severely imbalanced. The government should pay great attention to the variation of the mechanism for the formation of agricultural product prices in the era of commodity capitalization.

Due to a drastic drought that led to a significant reduction in wheat production, Russia announced on August 5 the ban on grain exports. As a major global wheat exporter, Russia’s ban immediately sparked a wave of waves in the international market. The wheat futures price on the Chicago Futures Exchange, the world's most important agricultural exchange, closed at a daily limit, hitting a 23-month high and driving the corn futures price to hit a high of more than 13 months.

From wheat to corn to soybeans, global agricultural products played a “big bull market march”. The Secretary-General of the FAO's Inter-Government Task Force on Grains stated on December 17 that global food prices are facing an unprecedented long-term rise and may reach a record high by the end of the year.

According to the latest analysis of the Industrial Bank of France, this year's global food shortage problem will take two years to stabilize, and the firmness of agricultural product prices may continue into 2012.

Chen Xiwen said that with the increase in the import volume of certain agricultural products and the decline in self-sufficiency rate, the international market price has an increasingly greater influence on the domestic market prices of these products. The situation in the past two or three years has proven that the international market for soybeans and oil prices, domestic oil prices can only follow prices; soybean prices, soybean cake prices; soybean cake prices, feed price increases; feed price increases, meat Poultry and egg milk also have to follow prices.

Since the beginning of this year, China’s grain imports have seen a significant increase, and for the first time in a decade, a large amount of corn has been imported from the United States. According to statistics from China Customs, imports of grain and grain flour in China from January to November 2010 totaled 5.51 million tons, which represents a year-on-year increase of 106.3% compared with the 2.67 million tons imported during the same period last year.

The U.S. Grains Council recently stated that China’s corn imports in 2011 may increase from 1.5 million tons this year to 7.4 million tons, setting a record high. In fact, before 2006, domestic corn could still be exported in small quantities, but then the import volume of corn continued to increase. By 2009, it would import 700,000 tons and export 100,000 tons, becoming a net importer of corn.

In addition, under the background of the continuous introduction of quantitative easing monetary policy in the United States, the surge in international capital has also pushed up the prices of domestic bulk agricultural products. Li Guoxiang pointed out that international capital is betting that the prices of agricultural products in China will soar, thus entering the Chinese agricultural product market for speculation. There are two ways for international capital to influence the prices of Chinese agricultural products. One is to directly enter China's speculation, and the other is to speculate on the international market that China will purchase large quantities of agricultural products to raise prices.

Regulating "combination boxing" to swing agricultural products

With the introduction of the “State of the 16th” and the regulation and control policies of various localities and departments, the prices of agricultural products have dropped. The 2010 Central Economic Work Conference proposed that the overall level of stable prices should be placed in a more prominent position. "Ensuring the effective supply of agricultural products" will become the second largest task for economic work next year. The just-convened Central Rural Work Conference also proposed that next year we must use a variety of control measures to stabilise the agricultural product market. “The grain mills hurt farmers and the rice mills hurt the people.” In the process of regulating agricultural products, how to coordinate the interests of various groups of society, and how to ensure the coordinated development of agriculture and the economy and society, cannot be solved by simply suppressing prices.

The abnormal fluctuations in the prices of agricultural products such as garlic and mung beans have attracted the attention of relevant departments from the outset. The State Council held an executive meeting on May 26th and pointed out that a small number of unscrupulous operators fabricated information to spread prices, hoarded prices, and pushed up prices, leading to imbalances in supply and demand in local markets and abnormal fluctuations in prices. They pointed out that crackdowns on agricultural products and other violations of laws and regulations should be severely curbed.

In July, as inflationary pressures became more apparent, the National Development and Reform Commission jointly sponsored a number of ministries and commissions such as the Ministry of Commerce and the Ministry of Agriculture to introduce a number of agricultural product market regulation and control policies. On July 28 only, there were three government documents related to agricultural products.

In terms of grain, the relevant departments have strengthened the supervision over the acquisition of autumn grain, and the situation that multi-subject purchases have pushed up grain prices will be controlled. The State Grain Administration's deputy director Zeng Lijun said on November 9 that the central grain companies should fully understand the importance of doing a good job in this year's autumn grain purchase, take the lead in maintaining the stability of the grain market, and ensure that the autumn grain purchase work is carried out in a smooth and orderly manner. Because of allegedly pushing up grain prices, the operating business of China Grain Storage Corporation was suspended by the State Council.

On November 20, the General Office of the State Council officially promulgated the “Notice on Stabilizing the General Level of Consumer Price to Ensure the Basic Livelihood of the Masses” and proposed 16 measures to develop production, secure supply, improve the legal system, strengthen supervision, increase subsidies, and stabilize the people’s livelihood. It is called "National Article 16".

In addition to traditional measures such as guaranteeing supply and increasing subsidies, the supervision of funds has become an important part of this round of price control.

On November 19, the China Banking Regulatory Commission issued an emergency notice requesting the financial sector to effectively increase the support for the production, processing, and circulation of agricultural products and credit, and focus on supporting the products with greater growth and the impact on price stability. Strictly investigated and dealt with credit funds were diverted to agricultural products for speculation and hoarding. Raise prices and other illegal activities.

On November 30, the China Securities Regulatory Commission announced the implementation of the “National Article 16” circular, requiring all futures exchanges to substantially increase the trading margin for all varieties, and at the same time moderately increase the range of ups and downs of futures varieties; Futures varieties of intraday trading costs, to curb short-term frequent transactions.

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