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Updated: 2007-06-14 11:45

The headline-grabbing surge in pork prices has brought into sharp focus the rising trend of prices of a wide range of agricultural produce in the spot and futures markets.

Take soybean oil. The most actively traded soybean oil futures contract for delivery in September soared to a seven-year record of 8,048 yuan a ton this week on the Shanghai Futures Exchange (SFEX).

Agriculture analysts predict the uptrend will continue in coming months. "I expect it (soybean futures price) will reach 10,000 yuan (a ton) by 2008," said Ma Xiaofei, an analyst at China International (Shanghai) Futures Co.

Economists say the longer-term increase in prices of agricultural produce is underscored by the robust economic growth and the rapid improvement of people's living standards in China.

The imbalance between the fast-growing consumption and the projected output of agricultural produce is the fundamental factor behind the price trend, economists say.

Analysts believe the bullish market for agricultural produce is just taking off. There is still plenty of room for further price increases in the future.

But they note that an excessive and sharp rise in the price of agricultural produce is unlikely to recur in the near future. "The price increase is expected to take on a gradual upward trend, steady and continuous, within the range that consumers can accept," said Zhang Yong, a manager of agricultural produce department in Nanhua Futures Co Ltd.

Life appeared a lot less assured for many commodity traders just a few months ago. The sharp jump in pork prices in 36 major Chinese cities in May was an adjustment to the increase in prices of feed stock such as corn and soybean pulp.

Prices of pork and other agricultural produce have a larger weighting in CPI (consumer price index). As a result, the price increase in agricultural produce has greatly pushed up the inflation indicator.

The CPI in May rose 3.4 percent from April, with grain prices going up 5.9 percent on average and meat and poultry products up 26.5 percent.

Economists say the increase in CPI will lead to a further tightening of money supply. "Macro controls would exert some pressure on prices of agricultural produce in the short term. But as the market supply would still run short in the longer term, the prices of agricultural produce are expected to grow steadily," said Li Jingyuan, an analyst with Hai Fu Futures Co Ltd.

The price rise is widely seen as a process of revaluing agricultural produce in domestic market. Tan Ruyong, a professor of Shanghai University of Finance and Economics, said: "Prices of agricultural produce were undervalued for a long time, it's high time to rediscover their value."

The price discovery in agricultural produce will also help reduce the blind planting activities. "The price rise serves as an indicator to rearrange planting activities and optimize agricultural resources," Tan said.

"Usually the price increase in agricultural produce is not as frequent and significant as that of industrial products like energy and metals. It (the price increase) is a good opportunity to remind us to never develop industry at the expense of agriculture. The balanced development between industry and agriculture is key to a sustainable economy," Tan said.

Industrial experts said increasing industrial use of agricultural produce threatens higher demand of corn and soybeans in the near future. Corn is an important raw material for industrial alcohol while soybean and rapeseed oil are vital for the production of biofuel.

"Industrial use of agricultural produce will be another factor driving the market rally," said Li of Hai Fu.

China is a big importer of agricultural produce. The price in the domestic market is usually in sync with the international market. Thus the price rise of agricultural produce in the international market was also considered a contributor to the domestic market rally.

The price increase in the domestic market will bring about some changes in planting areas and the range of agricultural produce in the domestic market in years to come.

"Planters will increase the planting areas of corn and soybean. Those who didn't plant corn and soybean before will also expand their range of agricultural produce to increase their earnings," said Zhang Yong of Nanhua Futures.