Saturday, June 17, 2017

Good Wheat Crop But Price Held High

China's winter wheat crop is bigger and better in 2017, according to propaganda from the Ministry of Agriculture's Press Office. The harvest was 80-percent complete this week, and high quality, high yields, and an improved mix of varieties are evident, according to the Ministry.

Other news reports concur that the winter wheat region of central and eastern China has had good weather for this year's harvest. Only a few areas have been hit by heavy rains that degraded the quality of the crop last year; some areas of Shandong and Hebei reportedly accelerated harvest ahead of expected rain last week. The Ag Ministry reports that its program of coordinated wheat spraying averted pest and disease problems. Agricultural officials also brag that their guidance and quality wheat model-farming areas have increased the supply of high- and low-gluten wheat varieties that wheat millers previously had to import to make western-style breads, cakes, and snacks.

A report from China Grain Net agrees that the quality of this year's wheat is good, but surmises that the overall size of the crop is down this year. Supplies in the market are tight because a large proportion of last year's crop was purchased for the state reserve, according to this report. Imports are also restricted by a tariff rate quota.

In 2016, authorities purchased over 28 million metric tons of wheat at the minimum price--40 percent of all wheat purchased by all enterprises and nearly 22 percent of China's entire wheat crop. (To put this in perspective: the 28 million metric tons of wheat purchased and placed in storage last year is more than the output of all but five other countries in the world.)

According to China Grain Net, final demand for wheat flour is tepid now, and demand for wheat bran for feed is not especially strong either. However, traders have been buying the new wheat crop aggressively, because commercial inventories of wheat are thin.

Prices are still relatively strong in China because supplies in the market are artificially restricted. The government is holding on to reserves it built up by buying up wheat at minimum prices in past years.

China Grain Net says the Chinese wheat market still has abundant supplies, considering that the government's reserve corporation is still holding relatively high inventories. Auctions have offered 3 million metric tons of wheat from reserves each of the first two weeks of June, but less than 200,000 metric tons were sold. Wheat offered was mostly produced in 2014, but some was as old as 2009. Reports say the availability of newly harvested wheat has cooled demand for the old wheat being offered at auction. On June 20, another 3.1 mmt of reserve wheat and 144,000 metric tons of old imported wheat will be auctioned.

The major wheat-producing provinces have announced the start of purchases of wheat at minimum prices. Market prices for wheat in many places exceed the 118 yuan/50kg minimum price set for 2017 (about $ 9.40/bushel--and double current market prices in the U.S.), but prices are at or below the minimum in a number of districts.

Henan Province announced its minimum price program on June 6, assuring the public that it has 10.4 mmt of storage space in 955 warehouses available for this year's wheat. The government's agricultural policy bank has earmarked enough loans to buy up 12.25 mmt of wheat at support prices and to finance 2.25 mmt of "marketized purchases." Although world prices have fallen in recent years, the Henan announcement explains that the minimum price program is meant to shore up the enthusiasm of farmers to plant grain by assuring them of a minimum price for their crop.

The Agricultural Development Bank of China issued a document this week stressing the importance of the minimum price program for summer grain procurement, and it urged provincial bank branches to work with local grain officials and grain reserve corporation branches to make sure funds are available for grain purchase, that there are no "empty spaces" in its procurement program, and that no IOUs are issued to farmers selling grain. Counties targeted for poverty alleviation will get special treatment to expedite funds for grain-purchase loans.

Shandong Province grain bureaucrats held a meeting to organize wheat marketing where officials were told that maintaining wheat production and boosting rural incomes are essential tasks to keep rural people satisfied and to keep the Central Communist Party Committee at ease.

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