For the first time in China's history, grain prices are rising not due to a poor harvest or increasing demand but because of soaring international oil prices. To feed the nation's increasing appetite for energy, a huge amount of capital including from overseas is chasing corn, soy and wheat for biofuel production; and pushing up prices to record highs.
 
Analysts say that while industrial use only accounts for about a sixth of overall corn consumption, it is expanding at up to 15 per cent a year, fuelled by high crude oil prices.

Official estimates are that annual corn consumption by processing industries would rise to 20 million tons from 16 million tons last year; and reach 40 million tons by 2010. Total consumption is expected to be 125 million tons this year. Ethanol is the main biofuel produced in China with output hitting 1.02 million tons in 2005 and corn accounted for 76 per cent of the raw material. The others are mainly wheat and sorghum.

The country plans to produce about 6 million tons of ethanol by 2010 and 15 million tons by 2020 in addition to 5 million tons of biodiesel. Ethanol can account for up to 10 per cent of refined products, whose total production was 48 million tons last year. But the gap between the potential demand of 4.8 million tons and actual output of about 1 million tons last year, is huge.

The price of corn in Shenyang, capital of Liaoning Province, stood at 1,400 yuan (US$175) per ton yesterday, a jump of 50 yuan (US$7.5) or 3.7 per cent, within a week. In the futures market, wheat and corn prices have also seen big boom.

Sources at the Dalian Commodity Exchange said corn prices have jumped 19.5 per cent in the two months ending November, a 10-year high. In East China's Shandong Province, wheat prices have risen from below 1.4 yuan (US$17 cents) per kilogram in September to 1.6 yuan (US$19 cents).

Source:佚名