i think bullish
especially as china is absolutely determined to reform food/ag sector, for the better
so, in alignment with the force, per the wish of the new sovereign
just in in-tray
MORGAN STANLEY RESEARCH
Link to complete report available below.
CHINA STRATEGY: CHINA'S BEST PERFORMING ASSET IN 2009 - GARLIC - November 24, 2009 GMT (5 pgs/ 48 kb)
Jerry Lou +852 2848 6511 Morgan Stanley Asia Limited+
James Cao
Allen Gui
Our view: Too much liquidity in any market can lead to speculation. The most recent evidence of asset speculation in China's commodity markets has been for garlic, which has seen unprecedented gains as speculators have entered the market (Exhibit 1).
What's new: The garlic price has soared in recent months, with prices in Jinxiang, which houses the largest garlic plant in China, rising 40-fold since March 2009, according to an article in China Business News. Garlic wholesale prices in major cities have risen by less over this period, but are still up about ten-fold. On a national level, wholesale prices for garlic reached Rmb6.14 per kilogram by mid-November, up 286% from March, based on data from the Ministry of Commerce.
Rising health concerns a catalyst: China reduced its garlic planting area by 50% in 2008, which partially explains the recent price surge. However, an additional catalyst appears to have been an article in the China Business News in June, suggesting that garlic might help combat H1N1 flu; although we note that the recent increase in flu cases does not seem to have created much actual demand. Garlic transactions are conducted in cash and, according to the article, Jinxiang's local banks and ATMs have struggled to meet the demand for cash due to the intense garlic trading activity.
Conclusion: Despite the sequential decline of new loan lending in China since mid 2009 (down from Rmb1.5trn in June to Rmb0.25trn in October), monetary conditions remain very loose. Our economist, Qing Wang, does not expect aggressive government tightening until at least 2011. Until then, we would expect asset price appreciation in China to continue.
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