May 31, 2011

 

China's wheat prices consolidate lower before new crop arrival

 
 

Wheat prices in China's major producing areas were largely stable or slightly lower in the week to Monday (May 30), with those in some areas falling slightly in anticipation of the arrival of newly-harvested wheat.

 

Wheat prices in Jinan, Shandong province, were around RMB2,110 (US$325)/tonne, down RMB10 (US$1.54)/tonne from a week earlier, while prices in Shijiazhuang, Hebei province, were stable at RMB2,160 (US$333)/tonne.

 

A bumper wheat harvest is anticipated this year as the growth of wheat was not seriously affected by the drought, the China Grain Reserve Corp-owned Chinese Grain Network said in a research note.

 

The government is unlikely to start a programme to buy wheat from farmers at government-set minimum prices for state reserves this year, as market wheat prices are well above the protective level, the State Administration of Grain said.

 

In October of last year, the government set this year's wheat purchase prices for state reserves at RMB1,860-1,900 (US$287-293)/tonne, up to 8% higher than a year earlier, to protect farmers' interests. Market wheat prices are now around RMB2,150 (US$332)/tonne.

 

Without government purchases, wheat prices are expected to fall a bit once the harvest is completed in mid-June, but are unlikely to drop below the protective level, analysts said.

 

There is a possibility that the government would raise its purchase prices, as it needs to replenish dwindling state reserves. Regulating grain prices by releasing large quantities from state reserves is an important tool to combat inflation, analysts said.

 

Data from the government showed China sold 43.3 million tonnes of wheat from reserves last year, while purchasing only 22.6 million tonnes.

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