December 12, 2003

 

 

China Wheat Market Rally Stalled By State Auctions

 

Chinese spot wheat markets closed mixed this week amid light volumes, as the markets are trapped between the tighter supply outlook and impending sale of a large amount of wheat from state reserves, local traders in China said Friday.

 

News that China will buy 500,000 metric tons of Canadian wheat in 2004 was mostly interpreted as a political good-will gesture, rather than dictated by end user demand.

 

"The markets are more concerned with auctions here in Henan. There is not much trading interest in the spot markets, as buyers and sellers are holding different ideas about the wheat market," a trader from a grain trading company in Henan, the top wheat-producing province in China, said Friday.

 

Normal grade wheat in Henan offered by local warehouses was quoted around 1,440-1,500 yuan ($1=CNY8.28) a metric ton, virtually unchanged from the level last Friday.

 

Normal grade wheat in Hebei and Shandong, the other two major wheat producing regions, was quoted around CNY1,500/ton to CNY1,560/ton, unchanged to CNY40 lower from prices a week ago.

 

In the auction held in Zhengzhou, the capital of Henan, China sold about 200,000 tons of old wheat from the state reserve. The selling price was as high as CNY1,360/ton in the morning session, said the trader from Henan.

 

Officials at the Zhengzhou Grains Wholesales Exchange, who held the auction for government, were not available for comment on prices and other details because the auction was open only to select local feedstuff producers.

 

Early last week, China's Inner Mongolia sold about 290,000 tons of wheat from the state reserve in an auction at an average price of CNY1,450/ton. Traders said the government has quickened the sale of state-owned grain after the local wheat and corn markets moved sharply higher since late November.

 

The rally was caused partly by transportation problems which added to the tightness in supply. Looking ahead, however, the wheat markets are in a delicate balance, because any strong rally of local grain markets could initiate more selling by the government.

 

On the other hand, fundamentals of the markets are still friendly amid falling stocks and uncertainty over the new wheat crop, as well as cautious selling by farmers. The need of warehouses to restock is another potential factor, traders said.

 

"Right now, it seems that the government has enough stocks to cool the market. It will be interesting to see when the stock will be down to a minimal level," a wheat analyst from a local brokerage house in Henan said.