Farming stocks rising

Spectators at a recent agricultural exhibition held in Nanjing, Jiangsu province. China's agriculture output is affected by bad weather, however, agriculture-related stocks witnessed continuous growth in markets. [Photo / China Daily]

BEIJING - China's stocks in the agricultural sector maintained growth on the back of soaring agricultural product prices, displaying an immunity to the fall in the stock market after the government resolved to curb inflation.

The Shanghai Composite Index retreated for a fourth day and declined 13.74, or 0.5 percent, to 2,978.84 at the close on Friday. The losses pared gains for the month to 12 percent, shrinking the biggest monthly gain since July 2009. However, stocks in the agriculture sector grew at 3.33 percent last week, according to data from Wind Info.

Stocks in Yuan Long Ping High-Tech Agriculture Co Ltd, China's leading company involved in the breeding of new crop varieties and farming innovation, increased 2.28 percent after the State Council announced it would support biological agriculture, including biotechnology breeding and bio-pesticides. Gansu Dunhuang Seed Co Ltd, which is mainly engaged in crop seeds and the cotton business, climbed 1.2 percent to a share price of 32.7 yuan ($4.90).

According to a report from Qilu Securities Co, the price of spot cotton rose 16 percent last week and soybean oil prices increased 10.2 percent. Meanwhile, sugar futures in Zhengzhou Commodity Exchange grew 5.1 percent.

Bad weather has reduced the output of major agricultural products in countries including China and Brazil. In addition, the devaluation of the dollar has pushed up international commodity prices, said Fang Wei, an analyst from Shenyin & Wanguo Securities.

With the weather-related surge in food prices, China's September consumer price index (CPI) hit a year-on-year increase of 3.6 percent, a record over 23 months. Meanwhile, the producer price index went up 4.3 percent, with a growth of 0.6 percent from August.

"We believe the People's Bank of China's 0.25 percentage point rate hike on Oct 19 was intended to send the signal that the central bank is keen to contain inflation expectations," said Wang Qian, the chief economist of JP Morgan in China. The country's CPI is expected to peak in the coming months, with the inflation rate gradually stabilizing at around 3.2 percent by early next year, he said.

Given that the US Federal Reserve will continue to implement loose monetary policy in early November, the room for further rate hikes in China, to some extent, will be constrained, said Wang. He predicted the next rate hike may come in the second quarter in 2011.

However, the inflation rate cannot be curbed immediately by just modest raising of interest rates, said Fang. In agricultural sector, speculative investments may increase in the short term.

In the coming months, with the harvest of autumn grain crops, supply will increase in the market, which may slow down price growth. But the uncertainty of the weather and exchange rate movements may have an adverse effect, according to a report from Citic Securities.