August 16, 2011

Wheat prices in China's major producing regions were stable in the week to Monday (Aug 15), as sales remained slack due to seasonally low flour consumption, with farmers reluctant to sell at current prices.

Prices in Anyang, Henan province - China's largest producer, accounting for about a quarter of total production - were around RMB2,040 (US$319)/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$329)/tonne.

Farmers are reluctant to sell despite market prices that are much higher than a year ago and also above the government's minimum purchase prices, as they are betting on further price increases, traders said.

As of July 31, grain firms in major wheat-producing areas had purchased 39.6 million tonnes of wheat from farmers compared with 44.7 million tonnes last year, according to the State Administration of Grain.

China produced about 111 million tonnes of wheat this year, which suggests that farmers are holding on to most of the grain they have harvested.

The government is discussing a programme to buy wheat from farmers at market prices to replenish state reserves, according to Zhengzhou Grain Wholesale Market.

Weak wheat prices will get a boost once the programme is started, analysts said, adding that this could add inflationary pressure, so the launch will have to be timed to minimise overall consumer price index growth.