China steps up wheat support-buying to counter sluggish global agricultural prices

A reporter learned from the Hebei Provincial Grain Bureau that Hebei Province started the "2015 Wheat Minimum Purchase Price Implementation Plan" (hereinafter referred to as the "Plan") on September 11.

Since the beginning of August, wheat purchase prices in Hebei Province have continued to decline, and the current market purchase price has already fallen below the minimum purchase price set by the government. In order to keep the wheat market price in Hebei Province at a reasonable level, effectively protect farmers' interests, increase farmers' income from growing grain, and stimulate farmers' enthusiasm for growing grain, the relevant departments promptly launched the "Plan".

According to the provisions of the "Plan", minimum purchase price buying of wheat in the main domestic producing areas will end on September 30. Hebei Province launched the "Plan" at this time mainly because the current domestic wheat market price has been falling relatively quickly and has already dealt a blow to the wheat market price in Hebei Province, which had remained relatively firm for many years.

"Since the government implemented the minimum purchase price policy in the wheat market in 2006, for the vast majority of the time the wheat market price in Hebei Province has been higher than the minimum purchase price set by the government, and for many years Hebei Province had never launched the 'Plan'." Zhao Wei, a wheat trader in Shijiazhuang, Hebei Province, told the Futures Daily reporter that wheat produced in Hebei is mainly sold to Beijing, Tianjin, Shandong and other places. In addition, Hebei Province has many large flour milling enterprises and instant noodle production enterprises and other wheat end users, so the wheat market has long shown a relatively tight supply situation, requiring wheat to be transferred in from Henan and other major wheat producing areas to meet demand. But this year's market situation has been rather unusual. Since the new wheat came onto the market, national wheat demand has shown no improvement, while large quantities of wheat produced in Hubei and Henan moved northward by relying on the advantage of low prices, squeezing out the market share of wheat produced in Hebei, ultimately causing wheat prices in the Hebei market to keep falling.

Zhao Wei told the reporter that in order to make it convenient for farmers to sell wheat, Sinograin's Beijing branch, together with the Hebei Provincial Grain Bureau and the provincial Agricultural Development Bank, jointly determined 45 entrusted wheat purchase and storage depot sites, distributed across 6 major wheat producing cities. Starting September 11, the wheat purchase and storage depot sites will purchase the year's newly produced wheat sold by farmers according to the minimum purchase price for wheat set by the government and relevant quality standards. Because the time remaining before the end of purchasing is relatively short, it is estimated that the final quantity of minimum purchase price wheat bought in Hebei Province will be limited.

Data released by the State Grain Administration show that as of September 5, various grain enterprises in 9 major producing areas including Henan and Jiangsu had purchased 60.98 million tons of wheat produced this year, a decrease of 9.53 million tons from the same period last year. At the same time, in order to solve the problem that it is relatively difficult for farmers to sell lower-quality wheat, provinces including Hubei and Henan also invested large amounts of funds to support local state-owned grain enterprises and others in purchasing, solving the difficulty some farmers in producing areas faced in selling grain and protecting farmers' interests.

At present, global agricultural product prices are all relatively sluggish, domestic inventories of agricultural products such as wheat, corn and rice are very large, and in addition the new autumn crops are expected to have a bumper harvest, so the market expects that even if the main producing areas step up wheat purchasing, wheat prices will still hover at a low level.

During interviews, the reporter learned that apart from weak demand, the continuous expansion of China's wheat planting area over many years and successive annual increases in output are also the main reasons for the decline in wheat prices this year.