September 26, 2013

 

 

Due to dwindling high-quality supplies and growing expectations that state purchase prices will rise before the planting season begins next month, Chinese wheat prices have hit record peaks.

 

China sold 275,643 tonnes or 38.28% of the 720,144 tonnes of reserve wheat at an auction on Wednesday (Sep 18), according to the National Grain and Oil Trade Centre.

 

The transaction rate is higher than the 23.54% rate at the previous auction held a week earlier when 941,630 tonnes of reserve wheat was offered. Transaction at the domestic reserve wheat auction has been increasing since the beginning of September boosted by holiday demand.

 

Currently, wheat prices on the spot market maintain firm and are about RMB200/tonne (US$33) higher than the reserve wheat prices.

 

Beijing is expected to announce an increase in the price it pays for grain for its national stockpiles before planting begins in October. Rising domestic prices could stoke Chinese demand for imported wheat, triggering another round of overseas purchases by the world's top wheat producer, analysts said.

 

An industry analyst also said that if the price gap widens further, China could step up imports from Australia, Canada and may also be interested in US hard-red spring wheat.

 

After bad weather damaged domestic crops, China has bought more than six million tonnes of wheat from the US - predominantly soft-red winter wheat - as well as Australia, the China National Grain and Oils Information Centre said this week.

Prices for standard quality wheat reached RMB2,560 (US$420) per tonne in the top growing region of Henan on Tuesday (Sep 17), up 9.4% since the latest harvest hit markets in June. High-quality wheat in the major consuming southern province of Guangdong reached RMB2,900/tonne (US$474), up 8.2% from June.

 

The most-active Zhengzhou wheat futures for January 2014 delivery touched a record high of RMB2,885/tonne (US$471) on Tuesday, but had eased to RMB2,845/tonne (US$465) by 0102 GMT on Wednesday.

 

Chinese prices in the south of the country make US hard red spring wheat competitive even after tax and freight.

 

"Wheat consumption comes to a seasonal peak around now, but supply is not promising. Wheat supply in the market is pretty tight," said Zhang Weiwei, an analyst with New Era Futures. Flour mills typically step up purchases and build inventories ahead of traditional holidays in October.

 

The market expects Beijing to raise its minimum purchase price by 9% from last year's price of RMB2,240 (US$370) per tonne, Zhang said. Farmers are also holding back from selling in the hope that prices will push higher, analysts said.