Prices of agricultural produce futures in the domestic markets yesterday surged across the board on reports of a further increase in global food prices, fueled by expectations of increased consumption and the weakening US dollar.

The most actively traded soybean futures contracts for delivery in November on the Dalian Commodity Exchange (DCE) jumped 1.45 percent to close at 4,053 yuan per ton, while the soybean meal futures contracts for delivery in the same month soared 2.3 percent to close at 3,516 yuan per ton. Corn futures contracts on the DCE climbed 0.8 percent to 1,502 yuan per ton.

The domestic futures market rally was in line with the international price trend. Prices of a wide range of agricultural produce, including oil, soybean and soybean oil, have all been pushed up to their respective historical highs by numerous investment funds, analysts said.

An increasing portion of the huge domestic liquidity pool is also being diverted to the commodity futures market, said analysts.

The surging global consumption of agricultural produce in the coming years, driven by the fast-increasing world population and the growing use of agricultural produce as an alternative energy source, together with reports of a possible decline in supply have bolstered investor confidence in a commodity price rally in the longer term.

According to the latest figures released by the United States Department of Agriculture, the global aggregate output of soybean in 2007 fell 6.1 percent to 221 million tons from the year before.

The planting area of soybean this year also dropped to the lowest level in the past 19 years. The planting area of soybean in Heilongjiang Province shrank 10 percent this year. Soybean output in the province accounts for one-third of the nation's total.

Analysts expect the agricultural produce in the domestic market to continue the upward spiral with occasional fluctuations at high price levels.

"The rising concern about high inflation in coming months helps increase investor expectations of further price increases (in agricultural produce)," said Ma Xiaofei, an analyst at China International Futures Shanghai Co.

Li Jingyuan, an analyst at Haifu Futures Co, said: "Any news about bad weather conditions will add to investor worries about the supply and demand conditions and further drive the price to high levels."

It is widely expected by analysts that the soybean futures price in the domestic market will reach as high as 5,000 yuan per ton in the coming weeks. The cotton futures price is expected to surge to 16,500 yuan per ton.

(China Daily October 25, 2007)