October 31, 2006

 

China's wheat prices mostly firm as traders await auction

 

 

China's wheat prices held mostly stable in producing regions last week, with small rises in some areas on local shortages, analysts said Monday (Oct 30).

 

Prices for wheat of average quality in major producing regions were quoted around RMB1,380-1,480 a tonne, largely unchanged compared with a week earlier.

 

"Prices held firm across the country, with demand and supply largely in balance. However, in Henan and Hebei provinces, wheat prices rose RMB10-20 a tonne due to insufficient local supplies," said Wei Bin, an analyst at China National Grain and Oils Information Centre, a major government-backed think-tank in the agricultural sector.

 

Henan and Hebei are two major wheat producing regions in central and northern China.

 

"Prices for wheat of high quality are rising, with imports diving and exports expected to soar," said Hai Yang, an analyst at Zhengzhou Esunny Information Technology Co, a local grain analysis firm.

 

"On one hand, supplies of high quality wheat have declined, as wheat imports, most of which is good in quality, dropped," Hai said.

 

"Demand is expected to increase, on the other hand, with good quality wheat also preferred for exports," Hai added.

 

Prices for wheat of high quality ranged between RMB1,500-1,800/tonne in major producing regions, depending on the quality last week.

 

China's wheat imports hit 471,670 tonnes in the Jan-Sep period, down 85.2 percent on year, Chinese Customs data showed.

 

The government has a major influence on the domestic wheat market, analysts said.

 

In the hope of protecting farmers' incomes, China's central government designated state-owned warehouses in six major wheat growing provinces to buy wheat at RMB1,380-1,440/tonne from Jun 1-Sep 30.

 

Purchases by state warehouses during this period accounted for over 60 percent of the new harvest this year, according to local traders.

 

"The government will be able to control wheat prices by adjusting supplies to the market," said Wei.

 

This Friday, local traders said Henan and Anhui provinces plan to auction 1 million tonnes of wheat they bought in the sponsor purchasing programme this summer.

 

Anhui is another major wheat producing region in China.

 

"We need to watch closely results of the two auctions, which will probably make a substantial impact on the wheat market," Wei said.

 

"Floor prices for the two auctions should be a little bit higher than prices that the government bought from farmers," Hai said.

 

More such auctions are expected in November, according to Hai.