This is the time of year when farmers plant garlic. Farmers in Shandong and Henan are working hard to fill their fields with garlic. The time of year when traders buy garlic to stock their warehouses is definitely over. However, the garlic reserve is still quite large, which is why the price of garlic has recently shown a downward trend. The price of 5.5cm hybrid red garlic dropped from 2.36 yuan [0.35 USD] per 0.5 kg on the 10th of September to 2.18 yuan [0.32 USD] per 0.5 kg in early October. The price declined by 0.2 yuan [0.03 USD]. But will the price fall even further?
The main factor of influence on the garlic price is supply and demand. At the moment, supply far exceeds demand. Other factors include surface area devoted to garlic plantation, news about product quality prospects, and speculation in the garlic market. These factors have a short-term impact on the garlic price. Recent data shows no significant decline in the amount of garlic being planted, but the season only just started and the final figures are not yet clear. Garlic traders are keeping a close eye on the conditions in production areas. When long-term developments do not support the current garlic price, and there is no short-term profit, then the price is likely to fall even further.
The garlic price may continue to fall and even end up below the cost price for many people in the garlic market, but their first instinct is not to empty their stock, as one may assume. Traders are more hesitant to sell when the price is low. When suppliers unanimously slow down trade, then they create a temporary shortage, which pushes the price up. The fact that the garlic price approaches the cost price actually creates a strong but temporary stimulus.
Some traders with stock in storage are hesitant to sell now that the garlic price continues to fall, because they purchased their stock when the price was high. Much of the garlic currently on the market was purchased early in the season when the price was still low. Traders are still able to make a profit on the garlic they purchased at lower prices. However, that will change if the garlic price drops even further and falls below 1.5-1.6 yuan [0.22-0.24 USD] per 0.5 kg. The majority of garlic traders will only be able to compensate the difference between cost price and selling price for so long until the balance begins to tip. That is the moment when the price could stop falling and bounce back instead.