December 9, 2008

China wheat prices stronger on tight supply; may stay high

China's wheat prices in major producing areas were mostly higher in the week to Monday (December 8), buoyed by tight supply.

Wheat prices in Hengshui in major producing Hebei province were at around RMB1,824 a tonne, up from RMB1,800/tonne a week ago.

Wheat prices in Ji'nan in Shandong province were around RMB1,772/tonne, compared with RMB1,760/ton.

Farmers only have about 40 percent of their harvest on hand this year, down around 10 percentage points from previous years thanks to government purchases.

The government's price support for grain prices also helped maintain prices at high levels, analysts said.

Last week, the government sold 296,500 tonnes of wheat during its weekly auctions, or 80 percent of the 371,400 tonnes it planned to sell.

The average price at the auctions was RMB1,718/tonne, up RMB45/tonne from the previous week, the State Administration of Grain said.

Mills are limiting inventories due to tight liquidity amid financial woes, so they have been making regular purchases of relatively small volumes, said Hu Kai, an analyst at Dalu Futures Co.

Hu said he expected wheat prices to stay at high levels in the near term as wheat flour demand recovers and supports wheat prices ahead of the year-end holidays.

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