July 19, 2011

China's wheat prices flat as buying pace slackens

Wheat prices in China's major producing regions were slightly up in some areas but mostly unchanged in the week to Monday (Jul 18), as the pace of wheat purchases by grain companies is much slower than expected.

Prices in Anyang in the central province of Henan, China's largest producer - which 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, rose RMB10 (US$1) to RMB2,090 (US$323)/tonne.

Farmers are reluctant to sell as market prices are below expectations and because they expect prices to rise in the long term, the Chinese Grain Network, a consultancy owned by state stockpiler China Grain Reserves Corp., said.

As of July 5, domestic grain companies had purchased only 16.3 million tonnes of newly-harvested wheat in major producing areas, only half of the amount a year earlier, data from the State Administration of Grain showed.

"The lack of funds is the main cause of the stagnant market," Zhengzhou Grain Wholesale Market said in a weekly report.

This year, feed mills are expected to replace more expensive corn with wheat and boost wheat prices.

Wheat used as animal feed this year will likely reach 12.5 million tonnes, up from last year's 10.5 million tonnes, analysts said.

"Wheat prices need to rise as the grain's value is underestimated, especially that of high-quality wheat, which is remarkably undersupplied," experts added.