Feburary 1, 2006

China 2005/06 wheat supplies to outstrip demand 

According to the National Grain and Oils Information Centre, China's wheat output reached 97.5 million tonnes in 2005. Some wheat will still be imported in 2005/06 to help meet domestic demand. Supplies of locally produced new crop wheat are expected to fall short of domestic demand by about 3 million tonnes in 2005/06. However, overall supplies will still outstrip demand due to significant quantities of existing wheat stocks released into markets nationwide. 

Shang Qiangmin, the centre's director, said the extent of inventory build up and prices in China's wheat market during the first half of 2006 would depend on the following: 

• How inclined grain businesses are in releasing spot inventories into the market.
  
  
• The quantity of wheat released into the market through government intervention. 

Prevailing price levels of wheat have constrained pricing decisions of grain businesses with significant build up in spot inventories. But under normal circumstances, the businesses would not sell stocks at a loss. In light of other factors, wheat prices in China are expected to move lower in the near term, with any significant gains seen unlikely. The outlook of China's wheat market is also expected to remain bearish for the first half of 2006.