July 12, 2005

 

China wheat prices up; traders cautious over market direction
 

 

Wheat prices in major producing regions in China were slightly higher in the week to Monday, but trading was slow as farmers and traders were cautious over the market's direction.

 

Farmers were expecting a further rise in new wheat prices because new wheat prices started much lower last month compared with year-ago levels.

 

In addition, they were reluctant to sell their new harvest at existing prices, which were still lower than last year's, as they have incurred higher production costs, some traders said.

 

Except for some purchases from the government, buying from grain traders and others has been inactive, partly due to low demand for flour.

 

The government June 24 said it would buy 6.5 million tonnes of domestic wheat produced this year to add to state reserves, at a minimum price of RMB1,380/tonne for wheat produced in Jiangsu, Anhui and Hubei provinces, and RMB1,440/tonne for wheat from Henan, Hebei and Shandong provinces.

 

The plan actually set a benchmark price for new wheat. Market prices for new wheat in many provinces, therefore, were climbing toward the minimum prices set by the government.

 

However, some traders have cautioned that without active buying from other grain traders and grain processors, the impact of government support to wheat prices would likely be short-lived.

 

Many state grain warehouses in Henan province reportedly completed their wheat reserve purchases as required by the government.

 

"The government's planned purchase is expected to be completed by the end of this month," a Beijing-based analyst said. "The rise in wheat prices seen in the past two or three weeks will likely come to a halt without more buying from the government or from other economic entities."

 

In Henan province, prices for new wheat of average quality were RMB1,420-1,450/tonne Monday, higher than RMB1,400-1,430/tonne the previous week.

 

New wheat prices in central Shandong province were RMB1,410-1,450/tonne, slightly higher than RMB1,400-1,420/tonne the previous week.

 

Prices for new wheat in Hebei province were quoted about RMB1,430-1,480/tonne Monday, higher from RMB1,420-1,460/tonne the previous week.