June 28, 2011

China's wheat prices mixed; farmers hoard new crops

Wheat prices in China's major producing areas were mixed in the week to Monday (Jun 27), as prices of newly-harvested wheat rose slightly due to farmers' reluctance to sell with prices expected to rise, and prices of old-crop wheat were stable.

New-crop wheat in eastern China's Jiangsu province, the fifth-largest wheat producer, where harvesting is complete, rose around RMB20-40 (US$3-6) from a week earlier to RMB2,020-2,120 (US$312-327)/tonne.

In Zhengzhou, Henan province, the largest wheat producer, wholesale old-crop wheat prices stood at RMB2,090 (US$323)/tonne, flat from a week earlier.

Buying activity remains weak, with most flour mills staying on the sidelines due to higher moisture content and impurities in new-crop wheat. Warehousing companies and traders are seeking to buy more in an active manner, but due to a lack of funds related to tightening of monetary policies, the amount of wheat they hold seems to be limited.

"We expect prices of newly-harvested wheat to keep rising in the rest of the month," Zhengzhou Grain Wholesale Market said in a research note.

However, prices may not rise sharply as wheat prices are always tightly controlled and guided by the government, it said.

"Neither traders nor farmers can shake off the impact of government policies," it said, adding that increasing output this year is of great importance to combating inflation.

So far this year, the government has sold about 12 million tonnes of wheat from state reserves, roughly 10% of China's full-year demand, according to reports.

Sufficient wheat reserves and huge sales at the auctions have held wheat prices in check.