March 16, 2004

China's Wheat Markets Set To Rally

China's domestic wheat markets are poised to rally in the coming months, despite the intensive grain auctions to be held this month, local grain market analysts and traders said on Monday.
 
On Tuesday, Henan province in central China will auction 750,000 metric tons of old wheat, down from the 1.30 million tons originally expected to be sold, traders said.
 
On the same day, Tianjin in northern China will also auction 385,000 tons of imported wheat from state reserves, added the trader. "The amount of wheat offered in the two auctions is less than expected. The prices are expected to be strong, given the current market atmosphere," a trader from China National Cereals Oils and Foodstuff Import & Export Corp., or Cofco, said Monday.
 
Such auctions are the latest move by Beijing to limit rising market prices, traders said.
 
Most market participants and analysts believe China's wheat markets are unlikely to succumb to auction pressure, because many end users and warehouses are eyeing the auction as an opportunity to replenish their depleting stocks.
 
"Everybody knows the intention of the government. They don't want the market to rise too fast and too much, but given the strong demand to restock, the auction could only slow down the rate of rising," said a Beijing-based market analyst from a local brokerage house Monday.
 
In top wheat-producing regions like Henan and Shandong, many local millers have only limited wheat stocks, caught short by the sudden rally of grain markets.
 
In Shandong, prices of normal quality wheat were quoted at 1,580 yuan ($1=CNY8.277) a ton, compared with CNY1,420/ton a month ago. In Henan, the top wheat-producing region, prices were quoted at CNY1,520/ton, CNY100/ton higher than one month ago.
 
The markets are ready to absorb the auction pressure, as market watchers are bullish on the prospect of wheat markets, in light of an expected poor harvest this summer.
 
China's winter wheat was planted last October and November and will be harvested in May and June. Winter wheat production is forecast to fall to a 20- year low of 78.00 million tons, according to a government-backed grain think tank, citing lower acreage, late planting and poor growing conditions as reasons, traders said.