According to Grain and Oils Market News, the minimum-price wheat purchase policy "needs to give stronger guidance" and "enliven the market" by inducing more purchasers to enter the market. A Xinhua report said the influential role of intervention purchases on the wheat market "cannot be underestimated," and reported that experts expect the market to be enlivened after policy purchases of wheat begin. The Masses Daily assures farmers in Shandong Province that the price support will prevent prices from falling--despite excess wheat supply in the province.
With wheat prices falling, Chinese traders are cautiously buying the new crop only as needed, afraid of being caught with inventory that loses its value as the market becomes more glutted. After wheat from the new harvest came on the market this month, the price of old wheat from last year's harvest fell about 60-100 yuan/mt. Authorities hope that putting a floor under prices will encourage private traders to re-enter the market when they are assured the price will not continue dropping.
|China wheat prices|
|June 2019 domestic prices||Yuan/mt|
|Minimum purchase price||2240|
|North of Huai River||2160-2200|
|Purchase by flour mills||2240-2320|
|2018 wheat enter-mill||2340-2400|
|Average auction price||2330|
|April 2019 imports*|
|Canadian hard wheat||2254|
|*1% duty and 10% VAT added to unit values calculated from customs data|
Market reports say Chinese wheat prices are under downward pressure following a rebound in wheat output and better quality of this year's crop. Adding to supply pressure, authorities offered 3 mmt of wheat from reserves for auction in each of the first three weeks of June (but with prices exceeding current market prices, less than 150,000 mt was actually sold).
The chief of Shandong Province's grain and commodity reserves bureau warned that a "seasonal decline" in the wheat price is possible. The Masses Daily described this year's summer grain procurement as "especially complicated" with several factors weakening demand for wheat:
- summer is the low season for flour consumption
- shrinking swine inventories due to African swine fever have depressed demand for feed ingredients such as wheat bran
- flour mills are having difficulty raising funds for working capital to buy wheat.
North of the Huai River the price is 2160-2200 yuan/mt, and in Jiangsu Province the price is 2100-2240 yuan/mt. Anhui Province launched its price support purchase program June 5, and neighboring Jiangsu Province launched its program on June 12. Xinhua said under current market conditions, Hubei, Henan and southern Shandong could also launch minimum purchase programs soon. Xinhua estimated that 10 mmt of this year's wheat crop will be purchased by the minimum price program.
China's National Grain and Oils Information Center (CNGOIC) estimates China's 2019 winter wheat crop at 125 mmt, up 430,000 mt from last year. Total wheat output is estimated at 132 mmt.
The 2018 wheat crop quality was seriously degraded by heavy rains after harvest in Hubei, Anhui, and parts of Henan that caused lodging, mold and sprouting, but the 2019 crop is said to be good quality. Test weights are said to be 780-800 g/L, up 20 g/L from 2018. Large amounts of the 2018 crop could not be used for flour-milling. None of the 2018 wheat reserves offered for auction this month has sold. Some organizations estimated feed use of the 2018 wheat crop was 18 mmt, up 3 mmt. Industrial use was estimated at 12 mmt, up 2.5 mmt. CNGOIC estimates that those increases in feed and industrial use will be reversed in 2019.
A separate Xinhua report from Shandong assures farmers that the provincial branch of the Government's Agricultural Development Bank of China has 30 billion yuan (about $4.3 billion) set aside for purchase of this year's Shandong wheat crop, estimated at 18.75 mmt. According to Xinhua, Shandong has set up post-harvest service centers to clean, dry, store, process, and sell wheat on farmers' behalf. Following this spring's audit of grain reserves, Xinhua promised strict investigations of violations of national grain purchase policies.
The Shandong reserve bureau chief told The Masses Daily that his bureau will ensure the volume of grain held in reserves is "truthful," meets quality standards, and that farmers do not encounter difficulty in selling their grain. The bureau is on the lookout for potential threats to social stability and warns grain-buying officials who neglect their responsibilities that they will be severely punished for bad effects on society.
Despite the glut of wheat and massive reserves, China imported 1.15 mmt of wheat during the first four months of 2019. Seventy percent was from Canada and about a fourth came from Kazakhstan and France. Smaller amounts came from the United States, Australia, and Russia. The Canadian wheat cost an average of 2254 yuan/mt after adding the 1-percent in-quota duty and 10-percent VAT. That's slightly higher than the minimum price, but the quality is superior to most Chinese domestic wheat. On the other hand, Kazakh and Russian wheat had low prices indicating poor quality. Other sources reveal that the Kazakh wheat is used to manufacture feed.