March 21, 2006

 

China wheat prices slightly lower as supply rises

 

 

Wheat prices in most parts of China slightly fell in the week ending Mar 20, as merchants sold more of their stocks, analysts said.

 

Prices of average quality wheat were about RMB20-30 lower at RMB1,330-RMB1,370 a tonne in Henan, China's biggest wheat-producing province.

 

Meanwhile, in Hebei and Shandong provinces, wheat prices were also RMB10 to RMB20 lower at around RMB1,420-RMB1,430/tonne.

 

Warehouses usually sell their old stocks from March to May to make room for new stocks, and to repay bank loans. This often boosts market supply, and prices decline accordingly.

 

Meanwhile, mills are not keen to buy, because of shrinking flour demand, which occurs every year after the Chinese New Year all the way until the Labour Day holiday.

 

"We're not very optimistic about the wheat price in the short run, and can only wait and see whether the demand will rise in April, ahead of the holiday," said Chen Kang, an analyst with National Grain and Oils Information Centre.

 

Meanwhile, market talk about a good harvest of wheat this year has also pressured the outlook for prices.

 

"The announcement of the minimum purchase price seems to only have a temporary psychological effect on the market," said Chen.

 

The policy targets purchases only after the new crop is harvested, he explained.

 

The Chinese government began implementing the minimum purchase price policy last year, ordering designated state-owned corporations to buy grains from farmers when prices fall below government-set reference prices, in order to protect farmers' income.

 

This year's minimum purchase price for white wheat has been set at RMB1,440/tonne and for red wheat at RMB1,380/tonne.