October 11, 2011

Wheat prices in China's major producing areas rose in the two weeks to Monday (Oct 10), as wheat sales slowed while farmers were busy with the corn harvest, forcing many flour mills to raise purchase prices.

In Zhoukou, central China's Henan province, wheat prices rose 2% from two weeks earlier to RMB2,060 (US$323)/tonne. In Hengshui, Hebei province, prices rose 1% to RMB2,120 (US$332)/tonne.

Traders appear to have lost some interest in the wheat market and are shifting to more profitable corn, analysts said.

Corn prices have increased around 30% in the last 12 months due to tight supply and strong demand, but have started to fall due to a record harvest, while the wheat prices have risen only 4%, government data showed.

At the end of September, the National Development and Reform Commission raised the minimum purchase price of 2012 harvest wheat by 7-10% from a year earlier to RMB2,040 (US$320)/tonne, to encourage production.

Market participants expected the increase, as wheat planting costs have increased more than 15% this year due to sharply rising labour costs, fertiliser and diesel prices.

The higher minimum will not have a significant impact on wheat prices, since it is in line with market expectations, the Zhengzhou Grain Wholesale Market said.

But farmers will be more reluctant to sell their inventories, as they expect higher prices in the coming months, traders said. Farmers are still holding about 30-40% of wheat output.