Chinese grain output lower for 2010
The extreme weather conditions in China in the second half of 2009 is affecting the countries grain output for 2010 according to a new report by Companies and Markets.
China´s most significant grain- corn- will drop in 2010 as yields fall due to water shortages. Soybean production, also based in the Northeast, will suffer too. The Northeast has not been the only area to suffer from water shortages. On the other side of the country in Guangxi, another important crop, sugar cane, has been hit by dry weather and we have revised down our forecasts for 2010 sugar output. While the Northeast has been drying out, China´s south east coastline has been lashed by tropical storms, though these will likely have little impact on total agricultural output.
High grain stocks carried over from the bumper harvest of 2009 when the government increased purchasing to support prices will mean that despite the drought, there will be no shortages of grain crops. This is welcome news for the livestock and dairy sectors both of which are recovering from crisis.
China´s pork producers suffered badly in the first half of 2009 from a combination of oversupply, weak demand and the H1N1 influenza (swine flu) outbreak. Since the start of H209, however, a rapid rise in pork prices has re-energised the sector. The recovery was started by government intervention to buy up frozen pork supplies to help support prices. This has come along with a fall in pig numbers as farmers reduce their herds. Together, this saw prices climb by almost 20% from June to September. This rising trend will see production grow strongly going into 2010, which ultimately should prevent prices reaching the peaks seen in 2008. In 2009, we estimate pork production to have climbed above the level seen in 2006 before the disastrous outbreak of blue ear pig disease.
The dairy sector has also been recovering strongly following the melamine adulteration scandal of 2008. Demand for Chinese dairy products has returned and most of the country´s dairy majors have moved back into profit following the losses recorded in 2008. The return of confidence in the sector can be seen in the flurry of activity from overseas private equity firms through the middle of 2009.
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