December 4, 2006

 

China eyes more wheat auctions to stabilise prices

 

 

China is expected to hold more auctions to sell wheat from state reserves over the next six months, to prevent prices in the domestic market from surging because of thin supplies, local traders said Friday (Dec 1).

 

"By May, 2007, the government would probably have auctioned to sell around 20 million-30 million tonnes of wheat bought under the minimum purchase price programme this year", said a trader based in Henan province, a major wheat producing region in central China.

 

Under a plan to support farmers' incomes, China's central government designated state-owned warehouses in six major wheat growing provinces to buy wheat at minimum purchase prices of RMB1,380-1,440/tonne from June to September.

 

Wheat purchases by state-owned warehouses totalled more than 43 million tonnes during this period, compared to around 10 million tonnes in 2005.

 

The government releases its stocks to the domestic market through auctions, the first of which was held on Nov 3.

 

"That means the government will need to auction around 1 million tonnes of wheat every week from now until May 2007," he added.

 

Wheat harvesting in China usually gets into full swing in June.

 

Wheat prices will hold stable over the next few months if the government holds auctions on a regular basis as expected, analysts said.

 

"The government will be able to control wheat prices on the market, with auctions of state stocks providing nearly half of the country's demand," said Hai Yang, a local grain analyst at Zhengzhou Esunny Information Technology Co.

 

China consumes around 8 million tonnes of wheat monthly.

 

"The government will probably hold wheat prices stable at RMB1,440-1,600/tonne, which is this summer's purchase prices plus a premium, including warehousing and transportation costs," she added.

 

The next auction of wheat from state reserves could be held on Thursday, local traders said.