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US Drought To Fuel China Pork Prices, Inflation - Macquarie

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08/24/2012 | 08:18am CEST
   By Chuin-Wei Yap 
 

BEIJING--Global agriculture price increases driven by the ongoing U.S. drought are likely to put upward pressure on China's pork prices and consequently drive inflation higher over the next 12 months, a senior Macquarie executive said Friday.

The dry spell in the Midwest has severely affected U.S. grain and soybean crops, which China depends on to feed its hogs.

"I would be very surprised if you don't see a flow-on impact to China pork and inflation" in the year ahead, Sydney-based executive director of Macquarie Agricultural Funds Management Tim Hornibrook told Dow Jones Newswires in a phone interview.

Only 24% of the U.S. corn crop and 29% of U.S. soybeans remain in good-to-excellent condition, with the stocks-to-use ratio--a measure of available supply--falling to 10% for corn, wheat and soybeans, Mr. Hornibrook said, citing U.S. Department of Agriculture data.

"What that implies is that you have 72 days of supply on hand," he said. "Between 2003-04 and 2012-13, this only occurred three times."

China heavily relies on foreign soybeans for hog feed, and pork prices were already set to rebound in the fourth quarter due to tight hog supply. Brazil and Argentina may emerge as alternative large grain suppliers, especially of corn, he said.

China's consumer inflation eased to 1.8% in July from 2.2% in June, though some economists warn that inflation may rebound in the fourth quarter due to rising global agricultural prices.

Write to Chuin-Wei Yap at chuin-wei.yap@dowjones.com

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