Analysis on the trend of international food prices in 2018

In the context of economic globalization, the correlation between China's domestic grain prices and international grain prices has been continuously strengthened
.
In the past two years, international food prices have fluctuated sharply, and the prices of major agricultural products such as corn, soybeans, and wheat have all experienced sharp rises and falls, which have an important impact on China's food security
.
Therefore, scientific prediction of the trend of international food prices in 2018 is crucial to ensuring national food security
.

 

The factors affecting the trend of international grain prices mainly include production costs, financial speculative capital, and supply and demand.
Therefore, the trend of international grain prices in 2018 can be predicted from the above-mentioned perspectives
.

 

From a production cost perspective
.
Oil accounts for about 20% of the cost of food production
.
Since February 2016, the international oil price has bottomed out and rebounded sharply.
By the end of 2017, it had soared from a minimum of US$26.
5/barrel to US$60.
51, an increase of 118.
3%
.
This will increase the cost of international grain production to a certain extent in the next two or three years, increasing its break-even point
.
Considering the impact of rising production costs, it is unlikely that international grain prices will continue to fall deeply, and it is also unlikely that the planting area will be greatly reduced in the short and medium term, thereby reducing production
.

 

Financial speculative capital analysis
.
After several rounds of quantitative easing by the Federal Reserve, the financial speculative capital in the international commodity market has increased significantly compared with 2008
.
Although the Fed has started a plan to shrink its balance sheet, the scale and process of its shrinking are still unclear
.
The substantial increase in international financial funds means that the buyer's strength in the international commodity futures market is rapidly increasing, and it is very unlikely that the international corn and wheat prices will fall below the mid-to-late lows
.
At this stage, the international gold and crude oil markets are sluggish, and speculative funds are in urgent need of suitable investment varieties to improve the return on capital
.
International grain prices have fallen sharply.
Once extreme weather occurs, speculative funds will flood into the market and raise grain prices.
The trends of wheat, soybeans and corn in the past year or so fully illustrate this point
.

 

Supply and demand analysis
.
In terms of food supply, the International Grain Council (IGC) report in May 2017 estimated that the world corn production in 2017-2018 was 1.
026 billion tons, and the wheat production was 736 million tons.
The output was 345.
09 million tons, the second highest in history
.
Since the increase in grain supply was greater than demand, the IGC's November report raised the world cereal ending stocks for 2017-2018 to 496 million tons, still at the second highest level in history.
Among them, wheat ending stocks are expected to hit a record high of 249 million tons.
Corn ending stocks are forecast at 207 million tons
.

 

In terms of grain demand, although the recent sharp rise in international oil prices will increase the demand for biofuels to a certain extent, the overall increase in grain energy consumption demand is not large
.
At the same time, the global population growth rate is not high in recent years, and the global food consumption demand will not increase significantly
.
Therefore, the situation of international food supply exceeding demand in 2018 will continue
.

 

As of the beginning of 2018, international oil prices had bottomed out and soared more than double to $65/barrel
.
The rise in international oil prices has raised the cost of international grain production.
If there is a loss in production costs, developed countries will gradually reduce the planting area, while developing countries will also reduce production due to higher production costs, which will limit further price declines
.
At the same time, the international oil price fell below the low point at the beginning of the international financial crisis in February 2016, but the price of corn and soybean did not fall below, and were relatively strong
.
Although wheat also fell below the previous low, it immediately surged by nearly 50%
.
As of the beginning of 2018, the international prices of corn, soybeans, and wheat have fallen significantly, and they have only risen by less than 15% from the previous low.
Compared with the doubled increase in international oil prices, it can be said that there is a strong demand for supplementary increases
.
At present, the La Niña phenomenon has formed and gradually strengthened
.
Affected by this, once extreme weather occurs, speculative funds will flood into the market, pulling up international food prices and causing large fluctuations
.
However, it needs to be clearly pointed out that even if the international food price rises sharply in the short term, it is of a rebound nature, and it will return to the production price after the unfavorable factors are eliminated
.

 

It is generally expected that in 2018, international corn, soybean and wheat prices are likely to fluctuate in a pulsed range.
Among them, corn is 350-450 cents per bushel, soybeans are 950-1100 cents per bushel, and wheat is 420-420 cents per bushel 520 cents/bushel
.

 

Taking Multiple Policies Simultaneously to Ensure my country's Food Security

In view of the various situations that may occur in the adjustment of international grain prices in 2018 and the possible impact on China's food security, China should actively take countermeasures and prepare for it early
.

 

First, the import volume should be rationally controlled according to domestic demand
.
This round of international grain price adjustment is a mid-term adjustment, and the adjustment period may be extended to around 2020
.
On the premise that there is no major natural disaster in the world, international food prices will not rise in a trend, but will only be a pulse-like rebound brought about by unfavorable weather factors, and will return to production prices after that
.
Therefore, the quantity of imported grain should be comprehensively considered according to domestic industrial production demand, consumer demand, import price, sea freight and other factors to avoid chasing high purchases, save import funds, and do more with less
.
At the same time, when domestic companies are hedging in the international market, they should also buy on dips, and should not chase highs to avoid losses
.

 

Second, moderately relax the boundaries between food security and market-oriented production, and effectively alleviate the negative impact of the “three highs” of food
.
At present, there is a new situation in our country where the "three highs" of grain, namely high output, high import and high inventory are superimposed, and the negative impact is significant, resulting in a big drop in the prices of the three major grain markets in China, among which the price of corn has dropped by 20% compared with last year.
The above, directly reduce the income of farmers
.
At the same time, the "three highs" of grain produce huge financial subsidy expenditures, increasing the financial burden and reducing the proportion of high-priced domestic grains circulating in the domestic market
.

 

The phenomenon of the "three highs" of grain and its negative impact is essentially a problem of boundary demarcation between food security and market-oriented production
.
If the security account is greater than the economic account, there will be a "three highs" problem, the core of which is that the domestic grain price is too high.
At this time, the grain price formation mechanism should be adjusted to improve the level of marketization of grain prices
.
On the contrary, if the safety account is smaller than the economic account, low output, high imports, and low inventory are prone to occur, indicating that there are hidden risks in food security.
At this time, the level of marketization of food prices should be reduced and financial subsidies should be increased
.
For example, considering factors such as population, grain demand, grain inventory, financial subsidy expenditure, international and domestic grain market prices, foreign exchange reserves, etc.
, whether the 95% grain self-sufficiency rate requirement can be moderately relaxed to 93%-95% at this stage, Then assess the level of food security after the relaxation, and then take corresponding measures
.
At the same time, continue to improve China's grain support and protection policies, accelerate the establishment of a long-term mechanism to protect the interests of grain farmers, and better enhance the ability to ensure food security
.

 

Third, actively and orderly increase investment in foreign agricultural mergers and acquisitions
.
Learning from the successful experience of overseas agricultural investment in Japan and South Korea, it is recommended to set up a special fund for China's agricultural overseas investment.
Bigger and stronger
.
At the same time, speed up the construction of a comprehensive information service platform for foreign agricultural investment for domestic enterprises, and reduce the approval procedures
.
In addition, greenfield investment and cross-border mergers and acquisitions have been combined to increase the proportion of the latter
.