Wheat prices decline, leaving traders and flour mills in misery

“At the end of September, many grain depots in the Puyang area posted a purchase price of 1.17-1.2 yuan/jin for national-standard second-grade wheat, which has now been lowered to 1.12 yuan/jin.” Cui Ruibing, a wheat trader in Puyang, Henan, told the reporter that entering October, although no major bearish factors appeared in the market and the wheat market also entered the traditional peak demand season, wheat demand simply showed no improvement, and coupled with corn prices falling relentlessly, the wheat purchase price also kept sliding.

Wheat prices are falling day by day, which has left many wheat traders and flour mills anxious. The head of a flour mill in Cangzhou, Shandong, told the reporter that facing piles of flour and bran and warehouses full of wheat raw materials, she could not sleep at night, and because she did not know when wheat prices would stop falling and stabilize, she had no choice but to buy less or stop buying wheat amid the confusion, and desperately cut inventories.

According to Cui Ruibing, at present the price of newly harvested corn in Henan, Shandong, Hebei and other places has generally fallen below 0.9 yuan/jin, and compared with corn prices, wheat prices are clearly on the high side. Because the two are strongly linked in price, the market therefore expects a downward run in wheat prices, and spot purchasing demand is extremely weak.

At the same time, in order to avoid the risk of price declines, wheat traders have been rushing to sell at cut prices, which ultimately caused wheat prices to fall sharply in a short period.

The reporter learned during interviews that the rapid fall in spot wheat prices was also closely related to the halt in government market-support purchases, and also closely related to large flour mills such as Wudeli, Yihai and COFCO taking the lead in sharply lowering wheat purchase prices. Because warehouse capacity was tight in various producing areas this year, the amount of wheat purchased by the government under the market-support program did not increase, and the amount of commercial wheat available for circulation in the market was rather large, so after the government's market-support purchases ended, supply pressure quickly emerged. And in order to avoid the risk of price declines, the above large flour mills continued to lower wheat purchase prices in the short term. Among them, the delivered-to-factory purchase price for ordinary wheat was lowered from 1.18-1.22 yuan/jin at the end of September to 1.09-1.13 yuan/jin. Afterwards, small and medium-sized flour mills followed suit and also lowered their purchase prices, and some flour mills even stopped buying and sold off part of their stock of raw material wheat. Under the combined effect of these factors, wheat prices in various places successively experienced a “high dive”.

Feng Wei, a wheat processor in Xinxiang, Henan, believes that the flour milling industry is in a difficult period, mainly shown in a relatively large funding gap at flour mills. Product sales are sluggish, and the rapid decline in wheat prices has also devalued raw material inventories, so it is estimated that before the overall economic environment fundamentally improves, it will be very difficult for the flour milling industry to escape its predicament.

It is also learned that in order to protect farmers' interests and prevent “cheap grain hurting farmers”, the government will continue to implement the minimum purchase price policy in major wheat producing areas in 2016. Taking into comprehensive consideration factors such as grain production costs, market supply and demand, domestic and international market prices, and the development of the grain industry, and with the approval of the State Council, the minimum purchase price for wheat (third grade) produced in 2016 is 118 yuan per 50 kg, unchanged from 2015, so as to stabilize grain production and promote the healthy development of the grain industry.