December 10, 2007

 

China wheat prices flat; government sales begin to weigh on prices

 

 

Wheat prices in China were mostly steady in the week to Monday (December 10, 2007), but traders said rising sales from the state reserves began to weigh on prices in some regions.

 

Prices of average-quality wheat in Henan province, a major production base in central China, were quoted around US$219 a tonne, little changed from a week earlier.

 

"The rising amount of government sales began to calm down prices, and as more sales are planned, it's impossible we'll see prices spike ahead of the seasonal strong demand," said Hai Yan, a wheat analyst at Zhengzhou Esunny Information Technology Co.

 

China sold a total of 2.78 million tonnes of wheat out of its planned 3.5 million tonnes last week, and another 4.5 million tonnes are set to be auctioned this week.

 

The government bought 71 million tonnes of wheat in 2006 and 2007 under the minimum purchase price program, which means it still has plenty reserves to regulate market prices to their desired level, Hai said.

 

"Flour price gains recently have prompted mills to buy more wheat, and given the rising supply from government sales, prices are expected to remain largely stable," said a trader in Beijing.

 

Demand for flour in China usually rises at the end of the year, and buying by mills can drive wheat prices higher.

 

However, as the government is concerned that "sectoral" inflation, reflected mainly in agricultural products, may turn into widespread inflation, it has stepped up selling grains from reserves to tame prices.

 

Traders said flour mills now rely heavily on the government sales, as farmers are still reluctant to sell, in expectation of higher prices.

 

Farmers may continue holding their stocks until shortly before the Chinese New Year, when they need to collect cash for the festival, traders added.