July 5, 2011

 

China's wheat prices inch up as trading improves
 

 

Prices of newly-harvested wheat in China's major producing areas rose slightly in the week to Monday (Jul 4), as more traders, stockpilers and flour mills entered the market with support from bank lending.

 

New-crop wheat in Jinan, in the eastern province of Shandong, the second-largest wheat producer, rose around RMB20 (US$3) from a week earlier to RMB2,070 (US$320)/tonne.

 

In Shijiazhuang, in the northern province of Hebei, the third-largest producer, prices also rose around RMB20/tonne to around RMB2,080 (US$322)/tonne.

 

"We expect prices of new-crop wheat to rise moderately," the Chinese Grain Network said in a research note, ruling out the possibility of a sharp rise or fall in prices.

 

Wheat prices are expected to be firm, underpinned by farmers' reluctance to sell inventories at prices below current market levels, and by the higher quality of this year's wheat, the Zhengzhou Grain Wholesale Market said Monday.

 

In a weekly 4.5 million-tonne offer of wheat from state reserves Wednesday, China sold only 40,200 tonnes, the lowest level this year, as flour mills have shifted their focus to new-crop products.

 

State-owned firms are buying wheat from farmers at a much slower pace than last year, as lack of credit due to monetary policy tightening has forced many buyers to stay on the sidelines.

 

As of June 20, they had purchased only 4.1 million tonnes of newly harvested wheat in major producing areas, compared with 11.3 million tonnes as of the same date last year, according to data from the State Administration of Grain.

 

However, the Agricultural Development Bank of China, a policy bank, has pledged RMB138 billion (US$21.3 billion) in loans to 3,515 grain businesses - mostly state and local grain stockpilers or state-owned grain traders - to help replenish government grain and edible oil reserves.

 

The 3,515 enterprises plan to buy a combined 55 million tonnes of wheat, or around half of China's annual output, and up 12% from last year's purchases, said the policy lender.

 

Once these companies get sufficient loans, they will re-enter the market to buy more wheat, supporting wheat prices, analysts said.

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