Thursday, January 5, 2012

More Reserves, Imports Rumored

According to an unnamed source quoted in a terse, widely-circulated news article, the Chinese government plans to boost reserves of a number of commodities and import more of others.

According to the source, the government plans to buy up 6 mmt of paddy rice to add to reserves and will give subsidies to companies to hold more pork reserves. These reserves would most likely be obtained by buying commodities on the domestic market. 

In the last two years companies buying rice for reserves have complained about having to compete with foreign companies who have gotten into the rice milling business and who pay higher prices. This announcement suggests that rice reserves are getting thin. Pork reserves are probably depleted too. There was some anecdotal evidence of meat companies who stopped buying hogs during the period of high prices in August-September and were selling off their inventories of pork.  

The source also claims that the government plans to expand commercial imports of corn, soybeans, edible oil, and cotton. The source also reports that the government will continue to clamp down on "blind" addition of corn processing capacity to maintain "stability" in the corn market. The government will continue its provisional price support program for cotton and rapeseed. 

The government plans to set up a chemical fertilizer reserve and a reserve of petroleum products to add to its strategic reserve of raw petroleum. 

The increase in reserves reflects the Chinese obsession with having massive reserves that they think can be used to stabilize the market, but such buffer-stock management rarely works. The urgency to add to reserves despite a series of massive grain harvests suggests they have been lying about grain reserves. In recent years a number of observers questioned the government's claims of large reserves when they saw empty warehouses. The grain bureau continually pooh-poohed these concerns and insisted they had large grain reserves on hand. 

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