The drought that has parched the land in much of northern China was
already months old when the artillery was called into action last week.
With the country’s wheat crop – critical to bread prices the world over –
under threat, hundreds of shells filled with silver iodide were fired
at the sky.
The assault on the clouds had the desired short-term effect,
provoking the first snowfalls of Beijing’s winter after 108 days without
precipitation. But while the light snow brought rare smiles to the
faces of grain growers, the National Meteorological Centre has already
acknowledged it wasn’t nearly enough to relieve the country’s parched
breadbasket. Wheat and flour prices linger near record highs amid
persistent whispers of looming production shortages that could force
Beijing – which has 1.3 billion mouths to feed – to import large amounts
of wheat for the first time in seven years. A recent statement on the
website of China’s national drought control headquarters described the
situation as “grim.” China is grappling with drought just as food
prices here and in many parts of the world are soaring, creating
concerns that unrest could spread as poor countries find many items
unaffordable. Broader inflation is also a rising worry in China and
other fast-growing emerging markets, and a problem in some slow-growth
countries such as the United Kingdom. Rising prices for an array of
goods could destabilize global economic recovery as companies cope with
higher costs and central banks around the world feel mounting pressure
to raise interest rates and slow growth. Wheat prices on the
benchmark Chicago Mercantile Exchange hit their highest level since the
2008 financial crisis earlier this week before sliding back after
assurances from Beijing that the country still had “abundant” grain
reserves. Wheat also hit a record high this week of 3,110 yuan
($466) per ton on the Zhengzhou Commodity Exchange – China’s main
grain-trading floor – amid predictions from international experts that
this year’s harvest could fall as much as four million tons shy of last
year’s 114.5-million-ton crop. In addition to concerns about
China’s crop, wheat prices have been driven up by floods in Australia
and a year-old ban on exports from Russia – normally one of the world’s
biggest producers and sellers – caused by a prolonged drought there. The
International Grains Council has estimated world wheat production for
2011 at 647 million tons, down substantially from 2010 and 2009. If
China does need to import large quantities, the market could tighten in a
hurry. China, which is largely self-sufficient in wheat, imported
1.4 million tons last year, in part due to a growing fondness for
Western foods requiring higher quality foreign wheat. The last time
China imported substantive amounts of generic wheat was in 2004 when it
bought about seven million tons (much of it from Canada) in an effort to
boost the country’s reserve stores. Last week, the United Nations
Food and Agriculture Organization issued a rare “special alert,”
warning that the ongoing drought that has hit the provinces of Shandong,
Henan, Hebei, Jiangsu and Shanxi – which together account for nearly
two-thirds of China’s wheat production – has already jeopardized crop
yields and “could become critical” if the dry spell stretches into
spring. The state-run Xinhua newswire has referred to the drought in
Shandong as the worst in two centuries. “In my hometown area,
everything depends on nature. We don’t have wells or other irrigation,
so if there is no rain there is no water in the fields. Planting time
comes in one month. If there is still no rain by then, the whole year is
lost,” said Wang Guichun, a Shandong native selling flour Wednesday in a
wholesale food market on the western edge of Beijing. As the
artillery barrage demonstrated, the government has been unwilling to
leave things to nature alone. Last week, Premier Wen Jiabao pledged a
$2-billion campaign to counter the drought and boost grain production
this year, including a massive effort to drill thousands of new wells in
Shandong, Henan and Hebei. Mr. Wen and President Hu Jintao have
separately toured the affected areas and called for “all-out efforts” to
combat the effects of the drought, usually a signal for local officials
to ignore budgetary constraints in achieving the directive from
Beijing. “We cannot do what Americans or Australians do, and just
leave it to nature, and if a drought happens farmers get compensation
from insurance companies. If a shortage happens, it will be a disaster
for the world because China will buy all the grain (on international
markets). We need to take responsibility for this,” said Chen Shuwei,
chief analyst at Beijing Orient Agribusiness, a consulting firm seen as
having close links to the Agriculture Ministry. But Mr. Chen said
it was still too early to panic, as the drought’s impact on wheat crops
wouldn’t be known for months. “We can’t make judgments until the growing
season starts.” Almost 90 per cent of wheat production in China, the
world’s largest grower, is spring wheat planted in March for harvest in
June. Inflation, particularly in food prices, is already a top
concern for Beijing, which has warily observed how food prices helped
spark the revolution in Egypt. The price of flour – which earlier this
week rose two yuan per 25-kilogram bag at Ms. Wang’s store in the
Beijing wholesale market – is seen as crucial because of its role in
Chinese staples such as noodles and steamed buns. Overall prices
rose 4.9 per cent in January, higher than the government’s 2011
inflation target of 4 per cent. Food prices jumped 10.3 per cent,
compared to the previous month. “The state council is doing
everything it can to fight the drought and keep food prices stable,”
viewers of state-run CCTV television were told this week, referring to
Mr. Wen’s cabinet.
" USD- Initial jobless claims and CPI numbers rise .."..
" CAD- Wholesale sales data increase for the month of December.....
More Americans than projected filed
first-time claims for unemployment insurance last week, a sign
the improvement in the labor market will take time to develop.
Applications for jobless benefits increased by 25,000 to
410,000 in the week ended Feb. 12, with Labor
Department figures showed today. The total number of people
receiving unemployment insurance was little changed, while those
collecting extended payments decreased.
A reduction in firings by U.S. firms is needed to keep
unemployment going down. Bigger job gains are needed to boost consumer spending, which accounts for 70 percent of the world’s
largest economy.
“As a lot of industries see improvement in demand there’s
not an opportunity to make further cuts,” said Russell Price, a
senior economist at Ameriprise Financial Inc. in Detroit. “We
will break below the 400 level on a sustained basis before the
end of the first quarter.” He said the overall trend is “still
good.” The cost of living in the U.S.
climbed more than forecast in January, led by higher prices for
food and fuel that may be starting to filter through to other
goods and services.
The consumer-price index increased 0.4 percent for a second
month, exceeding the 0.3 percent median estimate, figures from the Labor Department in Washington.The so-called core rate, which
excludes volatile food and fuel costs, rose 0.2 percent, the
biggest gain since October 2009.
Growing economies in Asia and Latin America are boosting
global demand for oil and other commodities, raising costs for
American factories. Accelerating growth is prompting some
companies to carry out beginning-of-year price increases even as
consumers remain constrained by unemployment at 9 percent.
“You’re going to see more companies that attempt to pass
through” higher costs, said Tom Porcelli, chief U.S. economist
at RBC Capital Markets Corp. in New York, who correctly forecast
the gain in core prices. “How successful they are depends on
the economic backdrop. We’re looking at a slightly firmer
inflation backdrop.”
Canadian wholesale trade rose by 0.8% in December from November, just
shy of expectations, according to data from Statistics Canada on
Thursday.It was the fifth straight increase and included gains in
six of the seven subsectors, representing almost all of wholesale
sales. In volume terms, sales were up 1.2% in December. Inventories
declined by 0.5%, which points to increased future activity by
wholesalers. Analysts surveyed by Reuters had forecast a rise of 0.9%. All figures are adjusted for seasonal factors such as Christmas sales. With
exceptionally strong growth in exports reported last Friday but tepid
growth in manufacturing sales reported on Wednesday, economists are
trying to gauge how strong Canada’s economy was as it exited the fourth
quarter. Wholesale sales can help predict future retail sales and
business investment. For the year as a whole, sales in 2010
climbed by 8.0% from 2009, wiping out a 7.2% decline in 2009 which came
as the result of the global downturn.
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