Monday, January 24, 2011

Food Inflation the new canary in the coal mine.


Over the last week, we have seen images on the news about the political tensions and riots in Tunisia with poverty, corruption and political repression having fueled a popular uprising and finally toppling the government. Other countries have noticed with concern and has prompted their governments into buying prompt shipments of wheat if not for immediate consumption but to stockpile and to quell higher food prices. The need for food security, especially in countries facing rising prices, will keep a fire burning under the agricultural markets for some time. Tightening supplies of quality wheat at a time when global food prices hit a record high last month has sparked a scramble for wheat. With US sales of wheat last week topping 1mmt, compared to the previous weeks sales of 175,000mt.

And what bigger country then China which needs to tackle food inflation and keep the masses content and fed. China, which needs to import increasing volumes of protein rich food to feed its swelling urban ranks. Led by corn shipments from the US, Chinese grain imports in 2010 surged as the rise of large-scale livestock farms and a shift in diet patterns dented Beijing's policy of self-sufficiency in the sector.

China imported 1.57 mmt of corn last year, an 18-fold increase on year. Newswires are reporting that China may import 1-2 mmt of corn this year, a sharp increase from 2009, when only 83,000 mt was imported and only 49,000mt in 2008! Higher demand in 2011 is coming from the rise of large-scale hog farming to feed China's growing appetite for meat. Wheat imports were also higher last year, rising 36% to 1.2mmt in 2010. Just last week, 200,000 mt of Aussie FED1 was sold to Chinese buyers, with potential for a lot more tonnage to follow. Soybean imports last year reached a record 54.8 mmt, and with sales last week of 11.52mmt from the US, 2011 looks like a big year for soybeans.

The Chinese government is in the middling of a juggling act, on one hand they have to increase the supplies of food to keep domestic prices down and the masses fed while on the other hand have to tighten the supply of funds (which impacts potential future grain purchases) to slow runaway inflation which continues unabated.

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