Wednesday, August 11, 2010

Clamping down on wheat prices

A post last month described the wild situation in the wheat market in Henan. A brief news item appearing on dozens of web sites August 9 says that since late July wheat prices have been falling in the area around Suqian in Jiangsu Province. The article originated from the grain bureau and appears to be an announcement that the government has called a halt to rising wheat prices.

According to "investigations of grass roots" wheat activity by local grain bureau personnel, the price paid by state-owned enterprises and companies with controlling ownership by the state is .94-.98 yuan/jin, down about .01-.02 yuan from the previous month. Prices gradually rose after new wheat came on the market, from .92 yuan to a peak of .99 yuan in late July.

Industry insiders give five reasons for the decline in prices which basically say that the government decided there was too much speculative purchasing and gaming of the price support program, so they called it to a halt.
1. "Macro control measures" by the state: wheat was released from reserves to increase market supply and cool off prices.
2. Local branches of the Agricultural Development Bank of China (the government's agricultural policy bank) are strengthening risk control and tightening up on lending (to grain purchasers).
3. Private grain companies have already stocked up on grain through earlier "panic buying."
4. Farmers' expectations of rising prices have been pricked, so now they're more willing to sell their grain.
5. Grain department employees are fulfilling their "guidance role," helping companies with risk management, advising on market prices, and guiding companies to "make reasonable purchases." In plain language, government grain officials visited all the grain companies and told them to "cool it."

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