March 13, 2006

China wheat prices mostly stable, despite rising supply
 

Wheat prices in most parts of China were stable in the week to Monday though slightly lower in central China's Henan province due to rising supply, analysts said.

Prices of average quality wheat were about RMB10 lower at RMB1,350-RMB1,400 a tonne in Henan, China's biggest wheat-producing province.

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

State warehouses have recently been selling old stocks in preparation for receiving new stocks, resulting in rising supply in the market, said Chen Kang, an analyst with National Grain & Oils Information Centre.

"But the government's announcement of minimum purchasing prices sent a clear signal to the market, which has prevented prices from falling much," Chen said.

The government, in an effort to protect farmers' incomes, set the minimum purchase price for white wheat at RMB1,440/tonne and red wheat at RMB1,380/tonne at the beginning of the month.

It was a timely announcement, as the market is usually pressured much by the seasonal supply rise every spring resulting from the sale of old stocks and farmers' sales in order to obtain needed cash for spring plowing, Chen said.

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

"I don't see anything that could lead to big fluctuations of prices in the foreseeable future; it'll be stable largely," Chen said.

Meanwhile, a good wheat harvest can be expected this year, perhaps even bigger than last year's, he said, although official statistics would not be available for a few more weeks.