November 21, 2006

 

China's wheat prices soar on tight supply

 

 

China's wheat prices soared in major producing regions last week due to tight supplies, analysts said Monday (Nov 20).

 

"Mills had to increase prices to acquire wheat recently, in order to keep a safe stock level, as supplies continued to be tight this week with no government auctions," said Wei Bin, an analyst at government-backed China National Grain & Oils Information Centre.

 

Average quality wheat in major producing regions were quoted around RMB1,500-1,620 a tonne, up RMB80-100 from a week earlier.

 

Under a plan to protect farmers' incomes, China's central government had designated state-owned warehouses in six major wheat growing provinces to buy wheat at minimum purchase prices of RMB1,380-1,440/tonne from Jun 1 to Sep 30.

 

Buying by state-owned warehouses during this period reached around 41.3 million tonnes, accounting for nearly half of China's winter wheat output this year, local traders said.

 

As such, the government has effectively become a major supplier on the market.

 

It holds auctions to sell the wheat bought under the minimum purchase price programme.

 

The tight supply situation grew worse with farmers and grain traders reluctant to sell wheat lately, expecting higher prices later this year, according to Hai Yang, a local grain analyst at Zhengzhou Esunny Information Technology Co.

 

The rise in wheat prices may not last for long with the government expected to hold wheat auctions soon, analysts said.

 

"Government auctions of wheat are expected this week, or the next, as prices of flour have soared lately, along with those of wheat, contributing to inflation," Hai said.

 

Flour prices were quoted around RMB1,880-1,920/tonne in major wheat growing regions this week, up more than RMB100 from a week earlier.

 

"As part efforts to check runway rises in wheat and flour prices, the floor price at the expected auctions will be significantly lower than current market prices," Hai added.