September 27, 2011

Wheat prices in China's major producing areas rose in the week to Monday (Sep 26), as flour mills started building wheat stocks and boosted operating rates as the high-consumption season began.

Traders and flour mills in the eastern province of Shandong purchased wheat at RMB2,090-2,140 (US$327)/tonne, an increase of around 1% from a week earlier. In central Henan province, wheat prices also rose around 1%, to RMB2,040-2,080 (US$319-325)/tonne.

China's medium- and large-sized flour mills have raised operating rates to around 80% from 60% earlier this month to prepare for strong holiday demand, traders said. China will celebrate National Day from October 1-7.

As wheat inventories with farmers fall and the premium of corn prices to wheat widens, wheat prices will be underpinned before the next harvest due in June, traders said.

Corn prices in China have risen around 25% over the last 12 months while wheat prices have increased only 4%, government data show.

"I don't expect spot wheat prices to fall from current levels," a Henan-based trader said, as wheat planting costs have increased more than 15% this year.

Market participants expect the government to raise its minimum wheat purchase price for 2012 by around 10% to encourage farmers to produce the grain.

The government usually announces the purchase price for the next year in October. The state-set 2011 minimum wheat price range was RMB1,860-1,900 (US$291-297)/tonne, up 6%-8% from the previous year.

"The tightening supply conditions, in combination with strong demand, will significantly push up wheat prices after the National Day holiday," the Zhengzhou Grain Wholesale Market said in a research note.