March 3, 2009

China's wheat prices were mixed in the week to Monday (March 2), with the easing drought situation and a rise in the government sales volume pressuring prices.

Wheat prices in Dengzhou in Henan province, a major producer, were around RMB1,800 a metric ton, unchanged from a week ago.

Wheat prices in Linyi in Shandong province, another major producer, were around RMB1,860/tonne, down RMB20 on week.

Red wheat prices at the Huazhong Grain Center in Hubei province were around RMB1,680/tonne, up RMB60.

Farmers were more reluctant to sell their wheat due to output cut expectations as a result of the drought, while processing plants were more willing to buy the crop due to a rise in demand, said China Grain Network in its note.

The government sold 1.53 million tonnes of wheat in auctions last week, about 90 percent of the 1.71 million tonnes it planned to sell.

The average price in the auctions was RMB1,775/tonne, RMB3 lower on week.

However, the market expects the government to further increase its base sales prices at the weekly auctions by RMB40/tonne, and many processing plants have bought enough wheat as stocks. These could put some downward pressure on wheat prices in the near term, said China National Grain and Oils Information Centre in its note.