August 9, 2011

China's wheat prices unchanged amid flat demand

Wheat prices in China's major producing regions were stable in the week to Monday (Aug 8), as the sales pace remained sluggish due to low seasonal consumption of flour and the absence of government buying in the market.

Prices in Anyang, Henan province - China's largest producer which accounts for about a quarter of total production - were around RMB2,040 (US$317)/tonne, unchanged from a week earlier. Prices in Shijiazhuang in the northern province of Hebei, China's third-largest producer, were also flat, at RMB2,100 (US$326)/tonne.

"We expect wheat prices to be stable in the coming months, but downside is still likely," according to Zhengzhou Grain Wholesale Market, China's largest grain market.

Wheat supply will be increased around October, as farmers and traders are expected to sell inventories to make way for the corn harvest, it said.

China will not allow state stockpiler, know as Sinograin, to buy wheat at the government-set minimum of RMB1,860-1,900 (US$289-295)/tonne until market prices drop to that level. Sinograin purchased 22.4 million tonnes of wheat last year - around 20% of total output - making it the largest wheat buyer in China, according to government data.

The market expects the government to let Sinograin raise its bid prices to replenish state reserves, as stocks at state warehouses are low after it sold 12.3 million tonnes so far this year, equivalent to around 11% of annual demand. Such a move would send wheat prices higher, intensifying competition for the grain.

As of July 31, grain firms in 20 major wheat-producing areas had purchased 35.9 million tonnes of wheat from farmers compared with 42.4 million tonnes last year, the State Administration of Grain said. State-owned companies bought 23.7 million tonnes compared with 35 million tonnes during the same period last year.

Only 28,600 tonnes of wheat were sold in China's weekly auction of 4.5 million tonnes from reserves last Wednesday, the smallest volume so far this year, as flour mills preferred high-quality new-crop wheat.