Going forward, the wheat market mechanism will play a further role
New wheat market performs steadily
In mid-to-late July, when reporters visited grain enterprises in major wheat-producing areas such as Jiangsu, Henan, Hebei and Shandong, they found that the phenomenon commonly seen in previous years of market players driving up prices to scramble for grain sources was gone. At many sites for purchasing wheat for the temporary state reserve, grain brokers and traders coming to sell grain lined up in an orderly way to be weighed, put into storage and settled. At the grain collection points set up by small vendors and grain brokers, reporters saw a steady stream of small horse-drawn carts bringing farmers to sell grain.
Han Jingxuan, business director of the Puyang State Grain Reserve Depot in Henan, told reporters that the biggest highlight of this year's new wheat purchase was that it was standardized and orderly, more good grain was purchased, and purchase prices were stable.
In order to protect the interests of grain-growing farmers and raise their enthusiasm for growing grain, the government began implementing a minimum purchase price policy in the domestic wheat market in 2006, and from 2006 to 2014, before new wheat came onto the market each year, the government raised that year's minimum wheat purchase price to a greater or lesser extent. Because policy support made it obvious that wheat prices were rising year by year, after many years the "policy market" characteristics of the domestic wheat market became increasingly evident.
Before new wheat came onto the market this year, the minimum wheat purchase price announced by the government was the same as last year's. The rule that the wheat market must raise purchase prices whenever new wheat came onto the market was broken, and the bullish psychology in the market was changed. After new wheat came onto the market, many market players took a wait-and-see attitude, and at one point the market expected that "farmers would have difficulty selling grain." At this time, the relevant government departments and Sinograin promptly launched the implementation plan for minimum-price wheat purchases and actively gave play to the role of the main purchasing channel, which not only stabilized market prices but also, in a timely and appropriate manner, brought excess grain sources in the market into the government's hands.
"In order to achieve orderly purchases, the relevant government departments and Sinograin and its regional branches made arrangements well before new wheat came onto the market. They not only strictly screened the entities participating in purchases, but also strictly regulated the transfer and settlement of purchase funds, the control of wheat quality and the final purchase acceptance inspection. Every item of work at purchase depots had rules to follow." Han Jingxuan said that because all entrusted purchase depots acted according to the rules and purchased according to quality and quantity, the phenomenon of market unrest after new wheat came onto the market in previous years was gone, and the phenomenon of purchasing entities driving up prices to scramble for grain sources was also gone. The entire new wheat market performed steadily.
According to reporters' understanding, since new wheat came onto the market this year, all market players have maintained a cautious psychology when entering the market. In the market, apart from companies in the Sinograin system and their entrusted depots, which have purchased relatively actively, other market players have purchased while watching, and some market players have also purchased according to sales. The phenomenon of previous years, in which market players regardless of the quality of newly produced wheat first seized grain and then sold it, has basically disappeared.
What deserves more market attention and reflection is that in wheat purchases in previous years, the issue the market cared about most was how much wheat had been purchased, and what was valued was how much grain was in hand and how long market supply could be guaranteed. By contrast, little consideration was given to the quality of the purchased wheat and to the harm and various effects that excessive purchasing might have on the market. In addition, some purchasing entities subsidized and drove up prices to purchase grain, making it very difficult for the government-led minimum-price wheat purchase to be orderly, standardized and appropriate in quantity, and naturally making it difficult to effectively regulate the market.
In this year's new wheat purchase, however, the market paid more attention to the quality of new wheat and to orderly, appropriate purchasing, bringing the policy's impact on the market to a relatively low level. This is very conducive to the market mechanism playing its role, and has brought many new changes and new situations to the wheat market.
⟦NL> Shift from a "policy market" to a "market market"
"Shandong-produced Jinan 17 has a high water absorption rate, and the current purchase price is only around 1.3 yuan/jin. The company plans to purchase about 5,000 tonnes for trade." Qiang Sheng, a grain and oil trader in Nanjing, Jiangsu, told reporters that after the government ended the game rule of raising prices whenever new wheat came onto the market, and after market entities such as Sinograin that implement the minimum-price wheat purchase policy better carried out all the detailed rules for policy implementation, the "policy market" characteristics of the wheat market became less obvious, and regional price differences in the wheat market and price differences between ordinary wheat and high-quality wheat began to appear again. As a grain and oil trader, the company can use its capital advantages, information advantages and purchasing advantages to do some business for end-demand enterprises.
Although the quantity of government-led wheat purchases decreased, the market did not see the problem of farmers having difficulty selling grain, and the abnormal market phenomenon of strong wheat and weak flour caused by large-scale purchasing and storage in the past was also changed. In interviews, reporters found that the main reason the domestic wheat market had obvious "policy market" characteristics in the past was excessive purchasing under government leadership. Because of excessive purchasing, all market activities had to revolve around policy. This year, after orderly and appropriate purchases appeared in the wheat market, the market had grain sources available for circulation, demand enterprises had more channels for procurement choices, and with the weakening of the "policy market" influence, some market players also dared to use market opportunities to make transactions. For example, some traders used capital advantages to purchase and hoard large amounts of high-quality wheat, and some traders also cooperated with flour milling enterprises to purchase and hoard ordinary wheat. In this way, the wheat market mechanism will play a further role.
Qiang Sheng told reporters that after the market mechanism plays its role, market activities must be determined by market rules. Why was the quality of new wheat purchased this year good? The main reason was that there was no price-driving scramble purchasing; from farmers to small vendors, to traders, and all the way to each entrusted purchase depot, all attached great importance to quality control.
Judging from current market purchase prices in China's main wheat-producing areas, purchase prices in southern producing areas such as Jiangsu, Hubei and Anhui are relatively low. In most areas, the purchase price of newly produced wheat at grain depots is 1.20-1.21 yuan/jin. Purchase prices in northern producing areas such as northern Henan, Shandong and Hebei are somewhat higher, but the highest price has not exceeded the government-announced market-support purchase price. The current mainstream market price is 1.21-1.22 yuan/jin, and wheat market prices are generally stable.
Yang Qingsheng, general manager of Henan Xuejian Industrial Co., Ltd., told reporters that the pattern of strong wheat and weak flour, which had persisted in the wheat market for many years, has been continuously improved since new wheat came onto the market this year, and the strange phenomenon of wheat and flour prices being reversed is estimated to disappear soon.
"In previous years, wheat purchase and sales prices were mainly decided by the government, but flour prices were liberalized and decided by the market. This caused wheat and flour prices to rise and fall out of sync, and in many cases wheat rose while flour fell, so the market price transmission mechanism failed." Yang Qingsheng said that under such circumstances, the flour milling industry had survival problems. Now the pattern of strong wheat and weak flour is beginning to change, which is a great thing for the flour milling industry and is also conducive to the stable development of the wheat industry.
For grain-growing farmers, growing better-quality wheat can bring better returns. In previous years, against the background of the minimum wheat purchase price rising year by year, farmers were more willing to grow high-yield ordinary wheat and gave little consideration to wheat market supply and demand. At present, after ordinary wheat prices lost policy support, their long-term weakening trend is relatively obvious, while high-quality wheat has performed strongly because of insufficient supply and strong demand. At present, in many producing areas, the price of high-quality wheat is about 400 yuan/tonne higher than the price of ordinary wheat. Stimulated by this, in the new crop year farmers will choose to grow more high-quality wheat. This is very conducive to adjusting the wheat planting structure, and will also reduce China's dependence on imported high-quality wheat and lower the raw material procurement costs of flour milling enterprises and food enterprises.
"In the past, when grain enterprises purchased wheat, they paid more attention to 'quantity first, ensure supply.' Simply put, it was 'with grain in hand, the heart is not panicked.' In fact, supply security was achieved only in terms of wheat quantity. But because the purchased wheat was of poor quality, some wheat might not form effective supply grain sources. In addition, this purchasing model guided farmers to grow wheat in an extensive and single-crop way, which in the end was instead unfavorable to the development of the domestic wheat industry, let alone ensuring China's food security." Wang Yingzhong, business manager of the Jining grain depot in Shandong, believes that grain enterprises now pay more attention to "quality first, ensure safety" when purchasing wheat, that is, they attach greater importance to wheat quality, to guiding farmers to adjust the planting structure, and to leaving enough room for the market to operate. Under such circumstances, the domestic wheat industry will enter a sound operating track, and China's grain supply and security will be better guaranteed.
Zhengzhou wheat futures market can be expected to become active
Stimulated by increasingly active trading in China's wheat spot market, the Zhengzhou wheat futures market has gradually attracted investors' attention since new wheat came onto the market. Although current open interest and trading volume in the Zhengzhou wheat futures market are still relatively small, the foundation for it to become increasingly active is being laid.
Wang Yingzhong told reporters that in the past, trading in the Zhengzhou wheat futures market was very brisk, but after the wheat market became a "policy market," there was no room for market prices to move up or down, and the good or bad weather in producing areas, increases or decreases in wheat output, and the size of market demand could not affect prices.
At present, the "policy market" characteristics of the wheat market are weakening. In addition, the price fluctuations of high-quality wheat in the domestic spot market are relatively large, and the Zhengzhou Commodity Exchange has revised some strong wheat trading rules in response to market demand. In the future, the Zhengzhou wheat futures market can be expected to become active again.
According to reporters' understanding, the Zhengzhou wheat futures market once guided China's main wheat-producing areas to develop a new planting model of "futures + orders," and at the same time provided a wide range of wheat traders, purchasing and storage enterprises, flour milling enterprises and government decision-making departments with good information and a basis for operations and decisions.
The market expects that as the orderly and appropriate situation in wheat purchasing and storage continues, the wheat market mechanism will play a further role, trading in the wheat futures and spot markets will become increasingly active, and the futures and spot markets will also integrate with each other, thereby better promoting the development of China's wheat industry.