December 31, 2003

China Wheat Market Soft Despite Concerns Over Tight Supplies

China's domestic wheat markets have turned soft with buyers having met their short-term requirements prior to the holiday season. However, market participants are concerned over the prospects of tight supplies in the coming year.

Tuesday, normal grade wheat in Henan province, the top wheat producing region in central China, was quoted around 1,400 yuan ($1=CNY8.27) a metric ton, largely unchanged from the level a week ago.

Prices in Eastern and Southern regions of China, where most of the wheat is consumed, were flat amid thin trading.

Prices in Hebei and Shandong were slightly lower as local millers slowed the pace of buying, traders said.

Normal grade wheat in Hebei and Shandong was in the range of CNY1,380- CNY1,420/ton, CNY20-CNY40 lower compared with prices a week ago.

"As the New Year is just around the corner, most millers have already covered their nearby demand. Slow buying and increased supplies have capped the upside momentum in the market," an analyst from a local brokerage house in Beijing said.

But any downside risk is also seen limited, as higher transportation costs have created a new floor for wheat prices. In November, local governments in northern China took measures to curb overloading of trucks, in turn raising transportation costs for the movement of grains and other commodities.