Tue, May 03, 2016 - Page 14 News List

Egg futures soar on PRC cash

SPECULATIVE FERVOR:Prices have surged by as much as one-third, the kind of move that would be justified if China’s chicken flocks were headed for an unfortunate fate

NY Times News Service, HONG KONG

China is pouring hundreds of billions of dollars into its economy in a new effort to support growth. Some of it is going into roads and bridges as well as other big projects to keep the economy humming, while some of it is going into eggs.

China’s latest lending deluge has sent money sloshing into unexpected parts of the economy. That includes a financial market in Dalian where investors can place bets on the future productivity of the nation’s hens.

Egg futures have surged by as much as one-third since March, the sort of move that would be justified if investors believed China’s chicken flocks were headed for an unfortunate fate, but the market’s usual participants say the flocks are fine. In fact, the actual price of eggs in the nation’s markets has fallen from a year ago, government statistics show.

The reason for the unusual jump in egg futures, they say, is China’s tendency to experience investment bubbles when the government steps up spending and lending. China’s previous efforts to bolster growth unexpectedly sent money into real estate and the stock market — markets that had unexplained rises followed by striking drops.

“Many commodities prices have gone up crazily,” said Du Shaoxing, a futures trader in Guangzhou. “We surely hope for a more stabilized trend where futures can reflect economic fundamentals. The way in which recent commodity prices went up is worrisome.”

China’s latest bubble illustrates the potential risks of its newest effort to spur growth. The Chinese economy is already burdened with too much debt, economists say, and sometimes stopgap measures to help the economy create long-term problems.

China is the world’s biggest producer of eggs, but it is not clear whether the investment surge in eggs would have an impact on real-world prices. Jumps in futures prices on commodities markets can take months to trickle down to the real world and if the commodities surge subsides, then the price of eggs in local markets might not budge.

Eggs are not the only commodity suddenly out of kilter. Domestic prices and trading volumes for steel, garlic, cotton, iron ore and other items have all soared despite China’s economic slowdown hurting demand for many items.

Officials at Chinese commodities markets are now taking steps to cool speculative fervor to avoid crashes and prices have begun to ease.

By the middle of last month, the frenzy made Shanghai futures contracts in steel rebar, the rods used in construction to reinforce concrete, the most actively traded in the world — overtaking trading volumes of two major oil futures contracts, West Texas Intermediate and Brent crude, that have helped set oil prices for decades, analysts at Citigroup said in a report last week.

“There is very little rational or fundamental basis for why prices have gotten as out of hand as they have, or why volumes are so high, other than just irrational exuberance,” said Alex Wolf, an emerging markets economist at Standard Life Investments in Edinburgh, who previously worked as a US diplomat in Beijing and Taipei.

Economists blame Beijing’s new efforts to shore up its economy.

Government officials increased lending by state-controlled banks and offered other support measures in the first few months of the year as economic growth slowed and longtime drivers such as manufacturing and exports showed continued weakness.

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