August 23, 2011

Wheat prices in China's major producing regions were largely flat in the week to Monday (Aug 22) as most flour mills kept their inventory levels low due to high moisture in new-crop wheat.

Wheat purchase prices in major cities in Henan and Hebei, China's largest and third-largest wheat producers, were around RMB2,040 (US$319)/tonne and RMB2,100 (US$328)/tonne, respectively, unchanged from a week earlier.

Most flour mills had wheat inventories at the equivalent of 0.5-one month's use, while only a handful of flour mills' stocks are around the two-three-month level, analysts said.

In the week to August 14, China's retail prices of flour were unchanged at RMB5.08 (US$0.79)/kg for the third consecutive week, Ministry of Commerce data showed.

On the wholesale market in some major producing areas, flour prices fell about 5% compared with early June.

Prices of wheat flour - a staple in many parts of China - have risen only 7% so far this year, compared with an 11% increase for rice, 38% for pork and 15% for sugar.

Flour demand is expected to increase between the Mid-Autumn Festival, which falls in late September, and the country's National Day, celebrated in early October, which will underpin prices, analysts said.

As demand picks up, flour mills will choose more new-crop wheat, as the old crop is almost used up - and the quality of new-crop wheat is expected to be up to standard then, traders said.

Prices in some major producing areas will likely rise as farmers' stocks decline and flour mills expand purchases, the Zhengzhou Grain Wholesale Market said.