December 8, 2006

 

China to auction more corn and wheat to tame prices

 

 

China is expected to release more state grain stocks into the domestic market through auctions over the next few months to stabilize prices of major grains including corn, wheat and rice, traders said Friday (Dec 8).

 

"We may launch an auction offering corn from state reserves in the near future as part of efforts to prevent a further sharp rise in corn prices," said a trader at Jilin Grains Centre, which comes under the Jilin Province Grain Administration.

 

Northeastern Jilin province is China's largest corn-producing region.

 

Domestic prices of grains have risen sharply in recent months due to expanding demand and speculative buying, coupled with a tightening in supply.

 

A timetable for the planned auction has not been set yet, as "we are still in talks with other government agencies and have not worked out the final plan," the trader said.

 

China has pretty good stocks of corn, she said, but did not elaborate on how much corn will be auctioned.

 

Prices of corn were quoted around RMB1,320-RMB1,650 a tonne across China this week, up by more than RMB 200 from a month earlier, while those of wheat were at RMB1,460-RMB1,600, RMB200 higher on average than last month.

 

For wheat and rice, China said it would be holding auctions of state stocks at a regular and moderate pace, to ensure security of supply to the market and to stabilize prices.

 

Prices of long grain rice increased by an average of RMB60 from a month earlier to around RMB1,530/tonne in major rice-growing regions this week.

 

"The government seems to be sending signals that it will take measures to curb runaway rises in grain prices witnessed recently," said Li Dongfa, an analyst at Shanghai JC Intelligence Co.

 

On Thursday, the National Development and Reform Commission - the nation's top economic planning agency - issued a statement detailing auction guidelines for interim state reserves.

 

Interim state reserves refer to grains bought under the government's minimum purchase price programmes and grains imported by the state.

 

To protect 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-RMB1,440 a tonne in June-to-September.

 

Wheat purchases by state-owned warehouses during this period totaled more than 43 million tonnes.

 

Since late November, China has sold over 2.6 million tonnes of wheat from state reserves at auctions.

 

Under a similar programme, China set a minimum purchase price of RMB1,400/tonne for early long grain rice harvested in four major rice-producing provinces. It bought a total of 3.75 million tonnes from July 16 through Sept 30.

 

The NDRC stressed that the floor price in an auction should match the minimum purchase price for the commodity plus a premium for logistics costs borne by the government, such as the cost of warehousing and transportation.

 

There is no change in the government's stance, since floor prices have always matched minimum purchase prices.

 

Rather, the NDRC's statement indicates that while the government, as a monopoly supplier, is keen to put a lid on further gains in prices, it will keep auction prices at levels well above minimum purchase prices to protect farmers' interest.