The consumption rate of circulating grain sources in the wheat market determines the scope for trade and procurement

At present, the “low-volume, low-price” procurement of new wheat in the main producing areas has created a strong “buyer's” market atmosphere, with effective supply relatively abundant, while the high price of state temporary storage wheat restricts its effective supply volume. As the quantity of new wheat grain sources in the circulation market gradually declines, the reduction in supply will affect its market price, and the speed at which demand absorbs new wheat will directly affect its periodic market opportunities.

Total procurement volume still at a high level in recent years

⟦NL> According to statistics, as of August 15, various grain enterprises in 9 main producing areas including Henan and Jiangsu had procured 55.29 million tons of newly produced wheat, with the procurement volume accounting for 44.73% of output. As of August 15, the volume of government-supported price-floor procurement in the main wheat producing areas of China was 17.87 million tons, a decrease of 7.42 million tons year-on-year, a decline of 29.34%.

Last year, because rising wheat prices led to a relatively short government-supported price-floor procurement period, while this year, because wheat prices continued to fluctuate around the price-floor level, the government-supported price-floor procurement cycle was notably lengthened, and the government-supported price-floor procurement volume gradually approached last year's level.

Judging from the recent progress of government-supported price-floor wheat procurement in the main producing areas, from July 5 to 15, the newly added government-supported price-floor procurement volume was 3.038 million tons; from July 16 to 25, the newly added volume was 1.847 million tons; from July 26 to August 5, the newly added volume was 1.558 million tons; and from August 6 to 15, the newly added volume was 817,000 tons.

The newly added procurement volume has shown a clear slowdown, which has significantly restrained the start of a wheat price uptrend. Although the procurement progress of new wheat in the main producing areas is slower year-on-year, since 2006 it has been second only to last year.

Stable-to-weak performance compresses trade space

Since new wheat from the main producing areas came onto the market, periodic market opportunities have disappeared, and the overall new wheat market has continued to operate in a weak state. Grain-using enterprises have basically adopted production-based purchasing, with inventory holdings lower than in previous years. Apart from strict quality control in government-supported price-floor procurement, grain depots and grain traders have adopted sales-based purchasing in market trade to control risks.

Last year, because the intensity of government-supported price-floor procurement increased rapidly in stages, combined with strong overall procurement, and the large-scale use of feed wheat starting in late July, grain sources in the circulation market became relatively tight, and purchasing and selling psychology reversed: holders of grain reduced their selling intensity, grain-using entities increased their purchasing intensity, and wheat prices ushered in a periodic market. This year, the disappearance of the above factors means that opportunities for periodic wheat price increases will be noticeably delayed. As of the end of August, the factory-gate price of medium-grade ordinary white wheat in the Xinyi area of Jiangsu was 2,360 yuan/ton, flat month-on-month and down 60 yuan/ton year-on-year; the factory-gate price of medium-grade ordinary white wheat in the Bengbu area of Anhui was 2,360 yuan/ton, flat month-on-month and down 60 yuan/ton year-on-year; the factory-gate price of medium-grade ordinary white wheat in the Jinan area of Shandong was 2,400 yuan/ton, down 40 yuan/ton month-on-month and down 200 yuan/ton year-on-year; the factory-gate price of medium-grade ordinary white wheat in the Shijiazhuang area of Hebei was 2,420 yuan/ton, down 20 yuan/ton month-on-month and down 200 yuan/ton year-on-year; and the factory-gate price of medium-grade ordinary white wheat in the Zhengzhou area of Henan was 2,420 yuan/ton, down 20 yuan/ton month-on-month and down 120 yuan/ton year-on-year.

Effective supply from state temporary storage declines

Because the market price of new wheat has continued to be lower than the floor price for auctions of state temporary storage wheat, transactions of state temporary storage wheat have continued to shrink. Although the remaining inventory of state temporary storage wheat is currently 15.5 million to 16.5 million tons higher than at the same time last year, due to price constraints, last year's new wheat procurement price was generally higher than the auction price of temporary storage wheat, and its effective supply was clearly less than at the same time last year.

Statistical data show that since early June 2015, the weekly grain source volume offered in the state temporary storage wheat auction market has remained at the level of 1.2 million tons. As of the end of August, the state temporary storage wheat auction market had held a total of 13 wheat auctions, with a cumulative offering of 15,216,981 tons, an actual transaction volume of 294,075 tons, an average transaction rate of 1.93%, and a weekly average transaction price in the range of 2,469-2,500 yuan/ton. By contrast, at the same time last year, the weekly grain source volume offered in the state temporary storage wheat auction market remained at the level of 500,000 tons, with a cumulative offering of 6,615,149 tons, an actual transaction volume of 1,387,627 tons, an average transaction rate of 20.98%, and a weekly average transaction price in the range of 2,293-2,367 yuan/ton. Opportunities for periodic increases in the wheat market are delayed

Statistics from relevant institutions show that in July 2015, domestic wheat flour output was 12,139,435 tons, compared with 12,535,194 tons in June.

At present, only 1 month remains before the end of government-supported price-floor procurement of wheat in the main producing areas. Under a pattern in which the market price is lower than the price-floor price, as the government-supported price-floor procurement execution period ends later, the supply-demand pattern of grain sources circulating in the market will become the key factor affecting the trend of wheat prices.

As time passes, the quantity of grain sources in the circulation market will continue to decline, and the recovery of procurement demand will make large-scale procurement increasingly difficult.

Because new wheat has a price advantage over state temporary storage wheat, unless the floor price for auctions of state temporary storage wheat is noticeably lowered, this means that the state temporary storage wheat from 2014 and the newly procured government-supported price-floor wheat will be difficult to flow into the market for a period of time, which will accelerate the consumption of grain sources in the circulation market.

Once grain-using entities find it difficult to procure new wheat, in order to maintain grain source supply for processing, grain supply channels will gradually shift back to the state temporary storage wheat auction market, and the market price may align with the procurement cost of state temporary storage wheat. A recovery in state temporary storage wheat may become a weather vane indicating that the circulation market is scarce and difficult to procure from.