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Demand for U.S. crops drops as China moves to control inflation

Wednesday, November 17, 2010

Crops from the U.S., like corn and soybeans, fell as China introduced policies to lower its inflation rate.
Crops from the U.S., like corn and soybeans, fell as China introduced policies to lower its inflation rate.

Corn and soybeans, the two largest crops in the U.S., fell to their lowest levels in over 5 weeks on news that China announced plans to slow growth as inflation surged there. Investors anticipated the move, as price fluctuations have plagued the markets for the past week.

China is the world's biggest consumer of soybeans. Its State Council said today that it would impose temporary price controls on agricultural goods as it endeavored to offset rising inflation. Corn also fell on the news. Last year, China was a net importer of corn for the first time in 14 years. Both soybeans and corn fell on the Chicago Board of Trade today, reaching their lowest levels since early October.

China's decision to slow down its economy echoed through the markets. Investors drove down prices as anxiety over further government intervention by the Chinese stoked fears that demand would decrease for commodities in the country. Investors worry that China will "raise interest rates and place tighter controls on consumer prices and agriculture commodities to control inflation," according to Jim Gerlach, the president of A/C Trading Inc. These price controls would trim down the amount of money Chinese companies will pay for soybeans and grains.

However, while China depends on other countries to provide its country with food, it is better positioned than most to deal with rising commodity prices because of its trade surplus and massive foreign reserves.
 

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