July 23, 2010

Australia's wheat exports to China have reached record high in five years as the country replenishes its inventories, according to CBH Group.

The shipments were probably "slightly" more than 700,000 tonnes since the start of November, said Matthew Rutter, Head of Trading at CBH Grain. According to company data, wheat sales in bulk were about 200,000 tonnes in the year ended October 31.

Zhengzhou's wheat futures have climbed 10% this year on speculation there may be a supply shortage after cold hurt crops in the world's most populous nation. China will offer five million tonnes for sale tomorrow and the government says there are ample reserves, maintaining grain stockpiles of about 40% of consumption.

"It's really just stocking up their stores, I would say, rather than any shortfall. I would expect they would continue to take advantage of prices they think are attractive. They are a hard market to get a sense of what theirfuture demand will be," Rutter said.

China is also increasing corn imports, pushing them to the highest level in 14 years, and selling from inventories to cool prices that have stoked inflation concerns. Grain price expectation increases are "comparatively strong," according to a news agency. Farm production faces difficulties rarely seen in previous years.

Chen Mengshan, the ministry's spokesman and chief economist, said that China has sufficient ability to "control" the domestic wheat market. Consumption is about 105 million tonnes a year and the winter harvest was 108.8 million tonnes. That, combined with the spring crop, will push production to more than 115 million tonnes.

According China Grain Reserves Corp's president Bao Kexin, the country consumes about 500 million tonnes of grain a year, with the government keeping stockpiles equivalent to about 40% of demand to safeguard supply in March. Premier Wen Jiabao has said the government is seeking to increase production of grains, oilseeds, cotton and sugar and will continue to stockpile agricultural commodities.

According to CBH Group, Australian wheat shipments to China this year are heading for highest level since 2004-2005.

China will probably import 1.3 million tonnes of wheat in 2009-2010, the most since 2004-2005, which is 6.7 million tonnes; and purchases may be 900,000 tonnes in 2010-2011, as per USDA.