Monday, October 14, 2019

Wheat Program Limits Purchases

China's minimum price for wheat will remain steady at 2240 yuan/metric ton in 2020, but a new 37-million-metric-ton limit on purchases at the minimum price will be introduced.

The limit on wheat purchases will be divided up into two batches, according to an announcement issued by the Administration of Grain and Commodity Reserves and four other departments. A basic purchase limit will be set at 33.3 mmt. If purchases reach 90 percent of the initial limit, provincial branches of Sinograin--the government's grain reserve company--can make recommendations for allocating an additional 3.7 mmt to provinces. The Administration of Grain and Commodity Reserves will make a determination based on monitoring of production, market prices, volume of farmers' unsold grain and other factors. If needed, the Administration will post the allocations of the second batch of reserve purchases on a web site.

Wheat purchases at the minimum price were 30.9 mmt during 2019. Purchases were much higher than in recent years because production increased and demand is weak this year, so prices fell to the minimum level in many regions. Large portions of the 2018 crop were below quality standards due to heavy rains, but there were few quality problems this year. The last time minimum-price wheat purchases exceeded 37 mmt was in 2009.

No specific reason was given for placing a limit on purchases. China may have introduced the limit to bring the program into compliance with its WTO commitments on domestic support following the United States' challenge of China's minimum price programs for wheat and rice.

China also held the minimum price for rice steady this year, but no limit has been imposed on purchases of rice to date.

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