Speculation in garlic causes wild price fluctuation
- By Wu Jin
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E-mail China.org.cn, November 10, 2017
Speculators in the garlic market may have suffered severe losses due to a fall in prices of the small-sized, but important agricultural commodity in recent months.
The wholesale price has generally dropped to a level of nine yuan (US$1.36) per kilogram this year, half what it was last year, according to Workers' Daily.
Meanwhile, the wholesale price of garlic transactions in Zhengzhou, capital of Henan Province, has dived to 3.6 yuan per kilogram, dropping approximately 1.4 yuan since fresh stocks appeared in the market in July.
"I have tons of garlic stocked at home without being able to sell it," said Zhang Baoheng, a garlic wholesale dealer in suburban Beijing.
According to the China Jinxiang Garlic Index, a sampling gauge based on the sale and stock piles of garlic in Jinxiang, Shandong Province, the indicator plummeted from 594.64 in May to the present 170.53.
"I earned an awesomely amount last year, with 4,000 yuan per ton in net profit. However, I never expected the stockpile this year would lead to losses," Zhang admitted.
According to him, the country has four major garlic production areas, namely, Cangshan in Shandong Province, Qixian in Henan Province, Pizhou in Jiangsu Province and Jinxiang in Shandong Province.
The garlic is usually stored every July and sold from the end of October until the end of the following April, during which time returns from the initial investments should start to flow in.
Last year, the wholesale price of garlic stood at six to eight yuan per kilogram, enabling the farmers to secure an income of 4,000 to 6,000 yuan per mu (667 square meters). However, this year, the price fell to barely 2,000 yuan each mu on average while the costs, apart from labor, reached between 2,500 and 3,000 yuan, according to Wang Xiangqian, a local farmer in Qixian.
Behind the phenomenon, the falling price can be viewed as a result of huge excessive inventories caused by the frenetic speculation emerging in the farming sector.
During a round of price hikes between 2009 and 2010, the garlic price soared 100-fold, exceeding the level of meat and eggs. Last year, the wholesale price hit 11 yuan per kilogram, 22.9 percent higher than the price ceiling in 2010.
"Speculation cannot be excluded as one of the reasons causing the price hike of garlic," said Cui Xiaona, an analyst from an agricultural products consultancy.
"Hoarders, after persuading farmers to sell their garlic to them, would store the product and wait for the best time to clear their inventories and obtain fat profits," Cui explained.
However, because of the massive storage in recent years, the market just has too much garlic to be consumed even by a nation of 1.3 billion people, and that caused the price to plunge, said, Chen Liuming, manager of a garlic agency in Xuzhou, Jiangsu Province.
The speculation in garlic or any other agricultural product, like, scallion and ginger, is no different from transactions in the stock market, said Wang Chen, a speculator in the agricultural sector.
"Some of my customers never own warehouses to do business. They'll decide when to purchase or sell based on price signals in the market, being able to net huge earnings while remaining at home," Wang said.
According to Wang, some hoarders may purchase thousands of tons of garlic, which can be preserved for about three years and expect to sell them at a crucial time of shortage.
"The threshold is low and the investors can do nothing but to hold on their money and wait for the agent's advice as to when to transact," Wang said.
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