March 7, 2006

 

China wheat prices steady after minimum price rule takes effect

 

 

Wheat prices in most parts of China remained stable in the week ending March 6, after the government set minimum wheat purchase prices for this year, analysts said.

 

"It has more or less granted the industry some confidence, giving the oversupplied market expected support," said Chen Yanjun, an analyst with Zhengzhou Grain Trading Centre.

 

The government last week announced the minimum purchase price for white wheat at RMB1,440 a tonne, and red wheat at RMB1,380/tonne, in an effort to protect farmers' incomes.

 

Current market prices are below the minimum purchase prices.

 

The government began implementing the state reserve purchasing policy last year, asking designated state-owned corporations to buy grains when prices fell below the government-set reference prices.

 

Non-state owned buyers such as mills are continuing to negotiate prices with farmers, but have stopped pressuring prices lower as they know state depots will buy more once prices fall too much, Chen said.

 

Meanwhile, as local consumption for flour may not pick up until April, mills' demand for wheat has shrunk, with most having only 10 to 15 days' inventory left, analysts say.

 

In Hebei and Shandong provinces, wheat prices were little changed, quoted around RMB1,420-RMB1,430/tonne and RMB1,400/tonne respectively.

 

In Henan, China's biggest wheat-producing province, prices of average quality wheat were about RMB10 lower at RMB1,370-RMB1,410/tonne.

 

"Prices at the local market are now even less likely to dip much, after the policy announcement," said Chen Kang, an analyst with National Grain & Oils Information Centre.

 

Chen added farmers are still holding about 40 percent of last year's output. And output is expected to rise this year due to increased acreage.