April 23, 2004

China Wheat Prices To Rise Soon On Pent-Up Demand

Continuing demand from millers and state warehouses to re-stock will gradually lift wheat prices in China by next month, traders said Thursday.
 
Wheat markets could bottom out around current levels and firm up despite the coming harvest, as pressure from new arrivals will be absorbed by strong re-stocking demand from both millers and warehouses, they said.
 
Some large wheat millers have only covered their nearby demand until late May, local traders in Shandong said.
 
The winter wheat harvest is expected to be in full swing in May in northern China plains.
 
"There is considerable upward risk, because of the concerns over grain security and the overall tightening supply situation," a wheat market analyst from China National Cereals Oils and Foodstuff Import & Export Corp said.
 
Local grain warehouses in major wheat producing regions are likely to compete intensely for new crop wheat, in response to the tightening grain supply situation.
 
The current prices for normal grade wheat in Hebei province are quoted around RMB1,600-1,680 ($1=RMB8.28) a metric ton, virtually unchanged from mid-April.
 
The condition of winter wheat is better than last year in major producing regions, but the final yield and the quality of the wheat crop are largely dependent on weather in late April and early May.
 
"There are already some signs of drought and heat, but up to now, the winter wheat crop conditions are just fine," said the Cofco analyst in Beijing. Market participants will, however, watch closely for any major weather threat in the coming two weeks, he said.
 
China's winter wheat acreage is down from last season because encouraging signals from government policy and an increase in local prices came too late to influence planting plans.
 
Meanwhile, domestic buyers mostly ignored a wheat auction by the Henan province Wednesday, as it isn't economical to move wheat from Henan to other provinces, traders said.
 
The fourth wheat auction in Henan Wednesday failed to spark much interest, as had happened in the previous three auctions, traders said.
 
It isn't feasible for buyers from other regions to buy wheat from Henan, given the high transportation costs, they said.
 
Henan has failed to sell most of the wheat in the past three auctions since middle March. The current auction is expected to last for weeks, traders said.
 
According to an official with a local grain and oilseeds company in Hebei, nearly half of China's wheat stocks are held in Henan, the largest wheat producing region in the country. The rest of the stocks are mostly in Hebei, Shandong, Anhui and Jiangsu.
 
Recent wheat auctions in many provinces have left very little wheat available in the pipeline, creating pent-up demand to restock warehouses after the winter wheat harvest, analysts said.