Chinese wheat prices hit record high on tight supply

September 26, 2013

Chinese wheat prices have hit record peaks due to dwindling high-quality supplies and growing expectations state purchase prices will rise before the planting season begins next month. Beijing, keen to encourage farmers to grow more wheat for the 2014 harvest, is expected to announce an increase in the price it pays for grain for its national stockpiles before planting begins in October.

Rising domestic prices could stoke Chinese demand for imported wheat, triggering another round of overseas purchases by the world’s top wheat producer, analysts said. “If the price gap widens further, China could step up imports from Australia, Canada and may also be interested in US hard-red spring wheat,” said an industry analyst with an official think-tank. He declined to be named as he is not authorised to talk to the media.

China has already bought more than 6 million tonnes of wheat from the United States – predominantly soft-red winter wheat – as well as Australia after bad weather damaged domestic crops, the China National Grain and Oils Information Centre said this week. Prices for standard quality wheat reached 2,560 yuan ($420) per tonne in the top growing region of Henan on Tuesday, up 9.4 percent since the latest harvest hit markets in June.

High-quality wheat in the major consuming southern province of Guangdong reached 2,900 yuan per tonne, up 8.2 percent from June. The most-active Zhengzhou wheat futures for January 2014 delivery touched a record high of 2,885 yuan per tonne on Tuesday, but had eased to 2,845 yuan per tonne by 0102 GMT on Wednesday.

Chinese prices in the south of the country make US hard red spring wheat competitive even after tax and freight. “Wheat consumption comes to a seasonal peak around now, but supply is not promising. Wheat supply in the market is pretty tight,” said Zhang Weiwei, an analyst with New Era Futures. Flour mills typically step up purchases and build inventories ahead of traditional holidays in October. The market expects Beijing to raise its minimum purchase price by 9 percent from last year’s price of 2,240 yuan ($370) per tonne, Zhang said. Farmers are also holding back from selling in the hope that prices will push higher, analysts said.
Source  Reuters

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