November 26, 2007

China's bid to curb wheat price rise may be in vain 
 

China will increase domestic wheat supply to curb rising prices, but the effort may be in vain due to overall food price inflation, analysts said on Monday (November 26, 2007).

China plans to auction 2.5 million tonnes of wheat Wednesday that it bought under the minimum purchase price program last year, up from the 1.47 million tonnes it planned to sell last week.

"It's a signal that the government can guarantee the market supply" and won't allow prices to surge, said Pan Wei, an analyst at Dalu Futures Co.

Wheat prices in China have been rising in recent weeks in line with overall inflation of food prices and amid strong demand for wheat ahead of the year-end holidays.

During its weekly auction last Wednesday, the government sold 1.23 million tonnes of wheat bought under the minimum purchase price program, or 84 percent of the 1.47 million tonnes it planned to sell, a record high ratio.

The government has repeated many times that it can guarantee the market supply of domestic grains and vegetable oils, after a rise in food prices pushed the country's inflation to an almost 11-year high in October.

But analysts don't expect more supply of grain to help keep the price rise under check.

"It will only slow down the growth but won't stop the rise," said an analyst with Shanghai JCI, who expects wheat prices to fall only after the Chinese New Year in early February, when demand will likely fall.