October 25, 2011


China's wheat market flat; near-term outlook positive


Wheat prices in China's major producing areas were stable in the week to Monday (Oct 24), but higher financing costs by private flour mills and traders as well as rising demand during the winter will drive prices higher soon.


Prices in Dezhou, Shandong province, were RMB2,060 (US$323)/tonne, unchanged from a week earlier.


In Hebi, Henan province, prices were around RMB2,070 (US$324)/tonne, also unchanged.


As of September 30, grain firms in 11 major wheat-producing areas had purchased 57.3 million tonnes of new-crop wheat from farmers, compared with 51.9 million tonnes during the same period last year, according the State Administration of Grain.


State-owned companies bought 35.9 million tonnes, accounting for 63%, compared with 78% last year.


The government will likely be more judicious in releasing state wheat reserves over the next several months, as it has bought less from the current harvest than it did from last year's, the Zhengzhou Grain Wholesale Market said in a research note.


Since September, it has cut the amount of wheat in its weekly auction to around three million tonnes from 4.5 million tonnes earlier in the year.


Wheat prices still have room to rise, mainly underpinned by higher financing costs from China's private-sector credit crunch, it said.


Meanwhile, active wheat buying by feed mills and higher demand during the winter will also send wheat's price around 3% higher in November, traders said.


Chinese Premier Wen Jiabao said over the weekend that grain supply and demand are basically balanced, and the government will take measures to stabilise feed prices and encourage hog production.


Wen said the government will "strictly" control corn consumption for industrial use.


In a reversal of historical patterns, the price of corn is higher than wheat in some areas, especially major hog-producing provinces.

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