May 16, 2006

China wheat prices stable; more supplies expected

Wheat prices in China were mostly stable in the week to Monday (May 15), supported by news that crops in some areas were hit by a drought, and market talk that the government's minimum purchase price policy will be implemented soon.

"It's true that crops in some places were damaged by drought, but we still forecast a good harvest year," said Chen Kang, an analyst with National Grain and Oils Information Centre.

Meanwhile, as the market has been expecting the government to implement its minimum purchasing scheme as early as the beginning of June, some mills began to buy more, said analysts.

Some mills more or less depleted their wheat stocks during the week-long Labour Day holiday, while farmers and traders grew reluctant to sell, due to the approaching implementation of the minimum purchase price policy.

In early March, China announced that the 2006 minimum purchase price for white wheat is at RMB1,440 a tonne and red wheat at RMB1,380/tonne.

With prices presently lower, the government is expected to soon step into the market to pick up wheat at the minimum purchase prices to protect farmers' income in an oversupplied market.

In Henan, China's biggest wheat-producing province, prices of average quality wheat were quoted at around RMB1,320-1,380/tonne, little changed from the previous week.

In Hebei, another major producing province, prices were stable at around RMB1,380-1,400/tonne.

"The market is likely to see more selling this month, as warehouses have to prepare more room for the new harvest, but a big price change is less likely,", Chen said.