February 17, 2009

China's wheat prices in major producing areas were higher in the week to Monday (February 16), as the government hiked auction prices for its weekly wheat sales.

 

White wheat prices in Dengzhou in the major producing province of Henan were around RMB1,780 a tonne, up RMB30/tonne from a week earlier.

 

Wheat prices in Shijiazhuang in Hebei province were around RMB1,800/tonne, up RMB20.

 

The government hiked its base auction prices for wheat by RMB40/tonne during weekly auctions last week due to higher minimum purchase prices last year.

 

It sold 1.13 million tonnes of wheat in the auctions, or 75 percent of the 1.51 million tonnes it planned to sell.

 

The average price was RMB1,766/tonne, up RMB38/tonne from a week earlier.

 

Analysts said the ongoing drought will help to push wheat prices higher later this year, as farmers will react to lower output and increased costs for 2009-harvest wheat.

 

The best-case scenario is a drop in wheat output of less than 10 percent this year, an analyst who recently toured the worst-affected wheat areas said Monday.

 

"Even if there is an output cut of 10 percent, it will be enough to meet (domestic) demand, but the psychological impact would be much bigger (than the actual impact)," and farmers will be reluctant to sell the wheat after the harvest, she said.

 

China's 2008 wheat output reached 112.5 million tonnes, up 2.9 percent on year, according to the latest data from the China National Grain and Oils Information Centre.

 

Meanwhile, industry participants said drought and possible cold weather may reduce the crop's output further.