September 26, 2006

 

China's wheat prices moderately up on tight supply

 

 

China's wheat prices continued to pick up last week due to tight domestic supply and recovering global demand.

 

Wheat prices in major producing regions were quoted around RMB1,360-1,380 a tonne for red wheat and RMB1,420-1,460/tonne for white wheat, up RMB10-20 on average from a week earlier.

 

"Supply is tight in the market as farmers have sold most of their stocks to state warehouses," said Zhang Liwei, a senior analyst at China National Grain and Oils Information Centre, a major government-backed think tank.

 

"Demand saw steady recovery last week as flour companies continued to increase purchases to build up stocks," Zhang added.

 

In a bid to protect farmers' income, China's central government instructed state-owned warehouses in six major wheat-growing provinces to buy red wheat at RMB1,380/tonne and white wheat at RMB1,440/tonne, until Sep 30.

 

Since the implementation of policy on Jun 1, purchases by state warehouses at the government-set prices accounted for over 80 percent of farmers' total sales, according to analysts.

 

Wheat prices before June were slightly lower than the government-set prices.

 

Great Wall Futures Company analyst Liu Xinghua said the rising demand for wheat on the international market was also a supportive factor for domestic prices.

 

"While demand is rising worldwide currently, the output of major producing countries is expected to fall this year," Liu said.

 

However, Liu said prices on the domestic market are not expected to rise too much.

 

"Prices (for wheat) could hardly exceed RMB1,600/tonne as state warehouses might sell wheat in their stocks to the market later this year, increasing supply rapidly." Liu added.

 

Supply and demand will be kept largely in balance for at least a couple of weeks, Zhang said. "Prices will hold stable with small rises in some areas next week."