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23 Sep 2020

International Economy

All eyes are on fluctuations in commodity prices...in light of China’s stockpiling policy (Current Issue No.3140)

            In September 2020, China sent a positive signal in regard to its economic development plan that laid out the country's strategies for the next five years, from 2021 through 2025. Of particular interest is China's return to stockpiling commodities with an emphasis on food security. Such actions will lead to increased demand for Chinese agricultural products, which may drive global agricultural commodity prices to see renewed upward trend.

            ​   KResearch anticipates that, in the short run (2021-2023), there will be a surge in policy-led demand for agricultural commodities. China is expected to accumulate domestic stocks to a level exceeding that of normal times, equivalent to 90.8 percent of total consumption for agricultural commodities in order to demonstrate the integrity of China's food security. This development will likely give agricultural commodity prices a strong boost, albeit for a short period of time. Nevertheless, close attention should be paid to other policies that are being issued by the Chinese authorities in the mean time – which may trigger price spikes for agricultural commodities during this period. Afterwards, China is expected to maintain domestic demand for agricultural commodity surplus for another five years (2024-2028) to foster confidence towards its food reserves for a while longer, and in so doing, keep prices at a reasonably stable level.

           In the long run, from 2029 onwards, China will presumably undergo a transition into an age of self-sufficiency economy. As a result, Chinese agricultural imports will likely fall, which would in turn precipitate a fall in the global demand for agricultural commodities - increasing the likelihood of long-term downward adjustments in agricultural commodity prices.

International Economy