July 12, 2011


China's wheat prices flat; traders, flour mills on sidelines


Wheat prices in China's major producing areas were largely unchanged in the week to Monday (Jul 11), as the cash market remained weak due to limited buying.


Prices in Anyang in the central province of Henan, which is China's largest producer and accounts for around a quarter of the total production, were around RMB2,020 (US$312)/tonne, unchanged from a week earlier.


Prices in Shijiazhuang in the northern province of Hebei, the third-largest producer, were RMB2,080 (US$321)/tonne, also flat.


Domestic grain firms are buying wheat from farmers at a much slower pace than last year, as Beijing has not yet started purchasing wheat from farmers.


State stockpiler China Grain Reserves Corp, or Sinograin, will begin buying wheat at government-set minimum prices of RMB1,860-RMB1,900 (US$287-293)/tonne if market prices fall to this level.


As of June 30, domestic grain companies had purchased only 13.1 million tonnes of newly harvested wheat in major producing areas, compared with 28.4 million tonnes a year earlier, according to data from the State Administration of Grain.


"Flour mills are reluctant to buy [and] farmers are reluctant to sell," as flour mills' profit margins are very thin during the low-consumption season and farmers expect prices to rise, a purchase manager at a large-sized flour mill said.


"The absence of the state stockpiler [from the market] is having a bigger-than-estimated impact on market sentiment," the Zhengzhou Grain Wholesale Market said in a research note.


Still, "we expect wheat prices to be kept roughly stable," it said. "Wheat prices look bullish in the long term."


Sinograin last year purchased 22.4 million tonnes of wheat - around 20% of total output - at the minimum prices for stockpiling, making it the largest single wheat buyer, government data showed.

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