China subsidizes production and storage of wheat and rice stockpiles to preserve "food security" for humans, but inedible grain reserves are being auctioned to deflate a bull market for animal feeds.
An article by China Grain Net reported this week that adjustments to opening bids in grain auctions reveal officials' determination to dispose of surplus wheat and rice purchased from 2014 to 2019 under the country's price support program. According to the article, less than 50 million metric tons (mmt) of surplus wheat remains to be sold after a string of auctions held since last year. Over 100 mmt of surplus rice--mostly medium grain--is targeted for disgorgement from bloated reserves. China Grain Net is a grain market news service operated by Sinograin, China's Grain Reserve Corporation.
The article focuses on the "huge effect" of an April 12 circular that raised the opening bid price for the wheat auctions by 60 yuan per metric ton. This move was interpreted by China Grain Net as sending a signal to boost the price for the new wheat crop that will begin harvest next month.
The first wheat auction held after the adjustment brought a higher average price, but only 10 percent of the wheat offered actually sold. The April 14 wheat auction had an average sale price of 2401 yuan ($369) per metric ton, 52 yuan higher than the previous auction. However, only 410,000 mt of the 4 mmt offered actually sold. The poor auction results are due to the so-so state of the flour-milling business with potential buyers said to be waiting for the new wheat crop to come on the market.
Officials reduced opening auction prices for medium grain rice because authorities are eager to sell the huge stockpile of medium grain rice. It is hoped that lower auction prices will make it feasible to pay high costs to transport piles of old medium grain out of the northeastern region. The medium-grain opening-bid reduction varied by production year: the opening bid was cut 25 yuan for 2019 rice, 30 yuan for 2018 rice, and 10 yuan for 2017 rice. The opening bid for medium grain ranged from 2540 yuan to 2625 yuan per metric ton. The minimum purchase price for those years was 3000 yuan for 2017 and 2600 yuan for 2018-2020.
China Grain Net said reserves of long grain rice are not as much of a concern. Opening prices for long grain rice were raised for 2017 and 2019 crop years and cut 10 yuan for 2018 long grain. Opening prices for long grain middle-late rice ranged from 2500 to 2560 yuan/mt. In the last auction of long grain rice, less than 32,000 mt of long grain rice sold out of 1.6 million metric tons offered.
Current market prices for wheat and rice prices in China are above their relatively low level a year ago when China was emerging from its pandemic lockdown. According to the National Bureau of Statistics, the average wheat price jumped to 2565 yuan/mt in mid-January--165 yuan above year-earlier price--when wheat auctions were selling 100% of grain offered. In early April the Bureau's average price was down to 2535 yuan. Wheat prices typically drop during June when the new harvest comes in.