February 20, 2006
China wheat prices lower on higher post-holiday supply
Wheat prices fell slightly Monday across China due to higher post-holiday supply.
As trading resumed last week after the Chinese New Year break, supplies increased. Farmers were trying to get rid of stocks to get cash in preparation for the upcoming spring seeding. Traders were doing the same to repay loans for last year's wheat purchases.
However, post-holiday demand for flour shrank, discouraging mills from buying much wheat.
In Henan, China's biggest wheat-producing province, prices of average-quality wheat were RMB20 lower at RMB1,390 a tonne to RMB1,430 a tonne.
In Hebei province, another major wheat producing base, prices fell RMB10 to RMB1,430-RMB1,440 a tonne. In Shandong province, prices dropped to RMB1,390-RMB1,430 a tonne from RMB1,400-RMB1,420 a tonne last week.
"The price decline comes a little earlier than we expected," said Chen Kang, an analyst at China National Oils and Grains Information Center.
"Moreover, preliminary analysis indicates a desirable output of wheat this year, probably even more than last year, although it may take a few more weeks before the final estimate is out," Chen added.
Analysts are predicting that farmers have sold only 30 percent to 40 percent of their total output. As such, prices are expected to continue to face downward pressure.
"If the prices fall too much, farmers will be reluctant to sell, thus prompting the government's supportive policies," Chen said.
However, he said it is still too early to say whether there will be government intervention.
China's eastern Jiangsu province sold all 94,857 tonnes of old wheat put up for auction Thursday at an average price of RMB1,100 a tonne.
Analysts said the higher-than-expected prices were because some processors might have felt that the prices were acceptable, in view of high corn prices.
China's local grain reserves are holding several auctions to dispose of old stocks to make room for new grains.
