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article imageChina hoarding food staples, world food prices continue to rise

By Lynn Herrmann     Feb 14, 2011 in Food
Valhalla - China is hoarding corn, wheat and rice supplies in what a chief economist calls an “aggravating concern” as weather events across the globe continue wreaking havoc on grain productions, all combining to have a serious impact on global food prices.
As major weather events continue unfolding across the planet, China currently holds 41 percent of the world’s primary grain stockpiles. Those grains - wheat, corn and rice - are at present the source of much concern as floods, fires and droughts are having devastating effects in major agricultural regions of the world.
US Department of Agriculture document show China’s 41 percent share of those global grain stockpiles are offset by the fact that the country only consumes 21 percent of that global supply, according to the National Post (NP).
Carl Weinberg, chief economist at High Frequency Economics said “This is an important enough mismatch to affect our view of the world's supply and demand balance for these critical crops,” NP reports.
The grain hoarding being conducted by the Chinese would not be a great concern under normal weather conditions, but catastrophic weather events - including floods and droughts in Australia, drought-related fires in Russia last summer and extreme conditions in China and parts of the US - are taking their toll on world supplies.
“But the fact that we are seeing a shortage of grain production in a number of places at once makes this subject a little more politically charged than it otherwise might be,” Weinberg said in an interview with NP.
“The Chinese are not causing prices to go up by doing this. The real problem is that it looks as if there will be shortfall of supply from a number of different regions. That’s the biggest factor at work. The hoarding is just an aggravating concern,” Weinberg continued.
Those catastrophic weather events include extreme cold temperatures across the US earlier this month that reached deep into Mexico’s agricultural region of Sinaloa and early estimates for that area show an 80-100 percent crop loss of squash, green beens, avocados and cucumbers, as reported by Digital Journal. There has been an almost immediate impact at US grocery stores as prices for those products skyrocket.
World wide, escalating food prices have been one of the causes of recent social unrest that have had major political implications, as recently seen in Egypt.
NP reports that
Based on Mr. Weinberg’s research, China holds one third of the world's wheat stockpiles, but consumes only 17% of total supply. Forecasts from the U.S. Department of Agriculture suggest global stockpiles will total 82 days of consumption by the end of the current crop year, which is just below the 50-year average of 86 days. But exclude China from the equation and there are enough stockpiles for only 63 days of consumption, which is “very low” by historical norms.
On Monday, wheat futures soared to $9.15 USD, their highest point since 2008. That surge is based in part on continued signs of political and social tension in the Middle East and North Africa.
Abdolreza Abbassian, senior economist at the UN Food and Agriculture Organization (FAO), told Bloomberg News last week: “Whenever you get the market as tight as we are now, hoarding becomes widespread.”
China is the world’s leading producer of wheat, yet the country’s current drought conditions are seen as a primary factor in world supplies not being replenished. After last summer’s fires, Russia (the fourth-leading wheat producer in the world) has banned wheat exports until summer at the earliest and the scenario is shaping up to have major ramifications.
“We need at least a 3 percent to 4 percent increase in total wheat production,” Abbassian told Bloomberg by phone. However, FAO data shows wheat inventories dropping by as much as 6.4 percent this year.
Weinberg’s High Frequency Economics released a note to its clients on Monday stating China is hoarding food in an effort to stave off any political or social unrest should the drought turn into famine-like conditions.
“Such prudence comes at a cost to the rest of the world, with prices rising for all grains,” Weinberg said. “If it were to lower its stockpiles so that they were in line with its consumption, inventories of corn outside China would rise from a paltry 33 days to a more normal 50 days, and perhaps prices would not be rising so fast on world markets,” he added, NP reported.
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