November 3, 2011

China's feed wheat auction sales hit record

China's feed mills have bought the highest volume of feed-grade wheat since March at a weekly auction on Tuesday (Nov 1) after a jump in domestic wheat prices.

Despite big state sales, feed mills are likely to reduce use of wheat and shift back to corn in coming months as the price gap between the two grains has narrowed following the decline of domestic corn prices.

Wheat is about RMB100 (US$16) per tonne cheaper than corn, narrowing from as much as RMB500 (US$79)/tonne in the third quarter, when feed mills used a large volume of cheap wheat to replace corn.

"Following the rise of wheat prices, feed mills will gradually shift back to corn, but the shift may not happen immediately and big feed mills are likely to continue to use a large volume of wheat in November," said one industry analyst with China National Grain and Oils Information Centre (CNGOIC).

The government sold 142,617 tonnes of feed wheat on Tuesday, accounting for 49.04% of that which was auctioned, and were the largest volume since late March when it began feed wheat sales. Tuesday's sale brought total feed wheat sales to 1.35 million tonnes.

Before the release, the government held about 1.6 million tonnes of feed-grade wheat in state reserves, which would support the auctions until the end of the month.

Wheat remains competitive, particularly for mills in the largest wheat areas of Shandong, Henan as well as southwest province of Sichuan.

China has already stepped up imports of wheat as well as corn to meet robust animal feed production.