Thursday, January 11, 2018

China Cuts Prices for Wheat Auctions

Chinese authorities announced that they will hold sales of old wheat from reserves beginning January 18, 2018 at reduced starting bids.

Wheat purchased through the price support program during 2014-16 will be offered at a minimum bid of 2410 yuan/metric ton, 50 yuan lower than previously. Sales will also be held for wheat purchased in the Xinjiang Autonomous Region (which is not part of the formal minimum price program, but has its wheat price supported by "temporary reserve" purchases). Wheat with excessive mycotoxin levels will be designated for sale to ethanol producers at discounted prices starting at 800 yuan/mt. Sprouted 7-year-old wheat from Xinjiang will also be sold at a discount starting at 1200 yuan/mt. In addition, authorities will offer imported wheat from 2013 stored in 16 different provinces at prices varying from 2160 to 2490 yuan/mt.

Wheat from 2012 shifted among provinces will be offered at prices from 2030 to 2330 yuan/mt. The first auction of 411,937 metric tons of interprovincial-transferred wheat reserves was held today (January 11), but none sold.

Wheat from Chinese reserves to be offered for auction
Starting price
Wheat procured at minimum price, 2014-2016 2410 371
Excessive levels of mycotoxins (Henan Province)* 800 123
2010 temporary reserve wheat (Xinjiang, sprouted) 1200 185
2011 temporary reserve wheat (Xinjiang) 2000 308
2012 temporary reserve wheat (Xinjiang) 2100 323
*designated for sale to ethanol plants. 

According to an analyst with the Xi'an national grain trade center, the reduced opening prices for grain auctions has several motivations. Officials want to tamp down price expectations in the market to sync up with the reduction in minimum wheat prices announced for the 2018 procurement season (which begins in June). Officials want to make more wheat available during the peak flour-milling period ahead of the upcoming Spring Festival. They also want to clear out old stocks of wheat to make room for 2018 grain purchases beginning this summer.

Another analyst says the wheat sales are being held to relieve cost pressure on flour mills. Reports say that the supply of high quality wheat is tight, but there is abundant supply of common and low-quality wheat.

An analysis on the flour information network earlier this month agreed that there are abundant supplies of common wheat. Flour prices are not rising because demand is relatively weak, and sales during the current "peak" demand season are not that vigorous. Prices for wheat bran--the by-product of flour-milling--are also weak, contributing to downward pressure on flour mill profits.

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