Relatively low price, revaluation of early rice

Looking further afield, the entire agricultural product, especially the grain, oil, and agricultural products sector is in a large bull market. The drought in Europe has led to an increase in the prices of international grain, oil, and agricultural products, which are then transmitted to the domestic market, while the domestic stocks of corn and japonica are likely to decline drastically. Become the driving force behind the rise in domestic agricultural product prices. Considering this background, after the early rice futures make up, it is still possible to continue to follow the entire agricultural product sector in the later period. The bull market of early rice futures just opened the curtain and was by no means the end of the game.

In the case of extremely calm fundamentals, on the 18th to the 25th of October, the early ER1105 contract for early indica rice futures rose nearly 300 points, and the volume and volume of the positions also surged. However, relatively loose supply and demand side, coupled with the fall in the surrounding agricultural products dragged down, early indica rice futures finished lower last week. For the large fluctuations in early rice futures, some market participants believe that it is caused by irrational speculation of funds, but we believe that the relative low price of early indica rice futures is the root cause of its increasing activity, and in the case that the surrounding agricultural products bull market is not over yet, Early indica rice futures have the opportunity to once again strengthen.

At present, the supply and demand side can not find the reason for the price increase of early rice. This year, the overall supply and demand of rice in China still belongs to a more relaxed pattern of slightly oversupply. According to statistics from relevant departments, China's new supply of rice this year was 393.6 billion kilograms, an increase of 2.5 billion kilograms from the previous year, and the demand was 374.5 billion kilograms, an increase of 4.8 billion kilograms from the previous year, and the annual savings was 19.1 billion kilograms. Rice stocks continue to increase momentum. Among them, early indica rice was affected by abnormal weather and planting area. The output was 62.6 billion jins, down 4.1 billion jins year-on-year, a decrease of 6.1%; the demand was 63.6 billion jins, an increase of 2.4 billion jins year-on-year, and the annual savings were -8 million jins; However, due to the fact that the balance of annual savings in previous years was more than 40 billion kilograms or more, stocks are extremely abundant. There will be no shortage of domestic early rice supply this year.

However, if there is no major change in supply and demand, there will be no major fluctuations in commodity prices. At present, the unconventional rise in the early rice futures price is mainly due to the issue of parity. The price of commodities and currencies, the ratio of income from farming and migrant workers, and the low price of early rice and other related commodities are the reasons for the rise of early rice. Japonica rice futures and even domestic food prices are facing the problem of revaluation.

I. Excess liquidity is the root cause of current price rises. In fact, commodity prices are the ratio of commodities and currencies. If there are relatively many commodities, the currency circulation is relatively small, and commodity prices will fall, that is, deflation. If the volume of commodities is relatively small, currency issuance. With large quantities, commodity prices will rise, which is inflation. In response to the 2008 global financial crisis, almost all countries have liberalized their liquidity. Naturally, China is no exception. In 2009, 950 million new loans were added, and this year it increased by 750 million, and M2 increased at a level of about 20%. In addition, China has become the largest foreign exchange reserve country in the world, and the huge foreign exchange expenditure has also increased the circulation of domestic renminbi. Since the beginning of this year, the increase in the prices of agricultural products such as garlic, ginger and mung bean has not been caused by excess liquidity. The government has realized the problem of excessive liquidity and the emergence of inflation. It has taken steps to increase the bank reserve ratio and raise interest rates to tighten liquidity. However, it is difficult to extinguish the flames of inflation in a short period of time. Under such ample financial conditions, in agricultural products, corn futures with a total number of 160 million tons or more can continue to go high, and the number of deliveries is only about 31 million tons of early-season rice. Such small varieties are naturally more There are reasons and conditions for the increase.

Second, the ratio of the income of rural workers and farmers is the root cause of the rise in the price of agricultural products In recent years, China's agricultural production continues to rise, the government continues to increase the purchase price, making the price of agricultural products continue to rise, the income of growing grain should show an increasing trend. But even so, farmers are reluctant to sell agricultural products almost every year. The main reasons for reluctance to sell are the increase in planting costs and the unsatisfactory planting income. The biggest increase in planting costs is the cost of labor. As China becomes a processing factory in the world, farmers’ opportunities for migrant work and incomes continue to increase, and the income from migrant crops in one mu does not reach the income of migrant workers in one week. Under such circumstances, it is natural for farmers to be reluctant to sell. Although at the beginning of the year, the government increased the purchase price of early rice this year, due to the farmers' reluctance to sell and the bidding prices of the acquiring companies, the early rice purchase price quickly far exceeded the purchase price set by the government, resulting in the government’s early acquisition of the rice market. There is simply no opportunity for implementation of the plan. The reluctance of farmers to sell, but also makes this year's early acquisitions of indica rice dropped significantly. According to statistics, as of September 30, 8 grain companies in the main production areas of early rice have cumulatively purchased 6,611,000 tons of early rice in 2010, a decrease of 1.29 million tons year-on-year. Among them, state-owned grain companies accumulatively acquired 4.258 million tons, a year-on-year decrease of 1.777 million tons. The government's declining control over the supply of early-season rice will weaken the government's ability to regulate the market, thus laying down hidden dangers for the future substantial increase in food prices. In the game of peasants reluctant to sell and acquire, whether it is wheat, corn or rice, the farmers have achieved a temporary victory.

3. The low price of early rice and other grain, oil, and agricultural products is the most direct reason for the price increase. If agricultural products are the value of commodities, the early rice futures are the “dead sea” in commodities. After the world financial crisis, under the measures taken by governments to stimulate the economy, industrial products may have increased in liquidity or demand, and prices have approached pre-crisis levels, and most agricultural products are far from previous highs. As a result, a full complement of agricultural products has emerged this year, first with industrial properties of cotton and sugar, then wheat, corn and beans, all of which have emerged from a strong upward trend. In the domestic futures market, only the early rice futures still go its own way and oscillate low. The relative low price of early rice and other grain and oil products will lead to consumer substitution on the one hand. For example, in the southern region, if the price of early japonica rice is lower than that of corn, it can be used as a substitute for corn; if the price of early japonica rice is much lower than that of flour, it can be used instead of flour in canteens such as schools and factories; thus increasing the use of early japonica rice , And eventually driving the price of early rice increased. On the other hand, it will change the market's assessment of early rice prices. The prices of japonica rice, middle and late japonica rice, corn, wheat, and oil are all rising. Whether farmers or the circulation of early indica rice, they will naturally recognize and accept the fact that the price of early japonica rice has risen. Then on the futures exchange, this recognition will become more rapid and direct because of the competition for funds.

Compared with the futures market, the spot price of early rice changed little, and remained at the level of about 2,000 yuan/ton. This has become the most powerful reason for many investors to look at the early rice futures. However, one of the functions of the futures market is price discovery, not the shadow of the spot market, and it is not uncommon for futures markets to lead the spot market.

Looking further afield, the entire agricultural product, especially the grain, oil, and agricultural products sector is in a big bull market. The drought in Europe has led to an increase in the prices of international grain, oil, and agricultural products, which in turn has led to higher domestic oil and fat prices. The drastic decline in domestic corn and rice inventories may be the driving force behind the rise in domestic agricultural product prices. Considering this background, after the early rice futures make up, it is still possible to continue to follow the entire agricultural product sector in the later period. The bull market of early rice futures just opened the curtain and was by no means the end of the game.