Friday, July 1, 2016

China's Inedible Wheat Sells Cheap(er)

Statisticians expected China to produce a near-record 130 million metric tons of wheat this year. However, a large proportion of the wheat crop recently harvested is inedible due to the effects of heavy rainfall that caused head scab, sprouting, and other problems with the grain. The poor quality wheat is not good for flour-milling since its gluten level is too low.
Wheat that sprouts while still on the stem. A photo from 2015.

The degree of problems with substandard wheat kernels varies from place to place, but the problems seem to be widespread across the winter wheat region in central and eastern China. The hardest-hit places appear to be in southern Jiangsu, Anhui, and Henan Provinces.

This summer five provinces have launched their minimum price procurement programs to place a floor under market prices. However, large portions of wheat cannot meet the standard of less than 20-percent substandard kernels required to qualify for the minimum price program. Farmers then have to sell their poor quality wheat at a steep discount to private traders.

In Yangzhou municipality, a district in southern Jiangsu Province, state-owned grain enterprises have purchased 263,700 tons of wheat as of June 29--about 40 percent of their expected total for the season. Of that, 145,900 tons was purchased at the minimum price. Private traders have purchased only 106,900 tons. Officials in Yangzhou say about half of the local wheat has problems with head scab, mildew, or sprouting.

Officials are prodding state-owned enterprises to buy up the farmers' substandard wheat. In the Yangzhou region, one local government has borrowed 20 million yuan for a special purchase program and the Agricultural Development Bank has earmarked an equal amount of funds for this purpose. Officials are negotiating with grain companies in Guangdong Province to purchase 140,000 tons of Yangzhou's wheat.

The poor quality of wheat may be a reason why the pace of procurement is markedly slower this year. As of June 20, 10.18 million tons of wheat had been procured in major production areas--that was 6.97 million tons less than last year. In Chuzhou of Anhui Province, sample testing showed that as much as 80 percent of the wheat was not up to standard.

In Pingdingshan, a region of Henan Province, officials estimate that 10 percent of this year's wheat doesn't meet the standards for the minimum price program. Feed mills, industrial processors, and companies from outside the province will be "invited" to buy up the substandard wheat.

Feed mills are showing interest in the substandard wheat as a substitute for corn--albeit at a low price. Good quality corn is relatively scarce in China at the moment. Much of the northeastern corn crop was procured for the corn price support program. Not that much corn is available outside the northeast. Corn prices are 1900 to 2080 yuan per metric ton in Jiangsu and Anhui Provinces, but substandard wheat is 1500 to 1900 yuan. In Guangdong Province, common corn is 1930-2000 yuan per metric ton, and off-quality wheat is 1700-2000 yuan. Some feed mills from Shandong Province reportedly have begun buying up substandard wheat in Jiangsu and Anhui.

The opinions of pigs and chickens regarding these shoddy ingredients in their food were not reported.

China has had problems with heavy rains at wheat harvest three years in a row. Grain depots are already stuffed with substandard wheat nobody wants. In Pingdingshan, there is reportedly only space to store 300,000 tons for the expected 500,000-ton procurement this year. On June 29, grain officials tried to auction off 52,000 tons of substandard wheat produced in 2010, but none of it sold.

While there is much concern about "low" prices of 1700 yuan per ton received by Chinese farmers, the average price of imported wheat (presumably of decent quality) so far this year is 1590 yuan per ton. China's floor price for domestic wheat that meets quality standards is 2360 yuan per ton. There is some speculation that the floor price for Chinese wheat could be reduced for 2017.

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