Wheat Market Lukewarm, Little Hope for Price Rises Later

Last week the domestic flour market showed little overall change, and in terms of buying and selling the overall impression was one of ample supply and flat demand. Prices therefore did not change much either, and the flour market suffered sustained cold treatment during the hot summer season.

Wheat Prices Slide in the Off-Season

⟦NL> Overall market demand is sluggish, the pace of ordinary wheat purchasing is unusually slow, and it remains hard to find any obvious bullish factors in the outlook.

On the buying and selling side, because the main source of demand——flour processing enterprises——has entered an off-season for production, their pace of wheat consumption has slowed markedly; added to this, the hot weather is unfavourable for storing new wheat, so their purchasing of wheat is clearly weaker than in previous years.

As for traders, because they can see no obvious business opportunities, they mainly take a wait-and-see attitude, and state market-support purchasing has become the main force buying on the market at present. On prices, old wheat prices are basically stable, while new wheat, because of the slow purchasing pace, has seen purchase prices edge down slightly in some areas.

Bran prices have continued to strengthen, mainly because of growing demand and falling supply. Feedback from feed enterprises shows that after mid-to-late July, demand for feed improved noticeably, which means demand for feed raw materials is bound to increase accordingly in future.

On the supply side, given that flour enterprises' operating rates are unlikely to improve noticeably before the summer holidays end, it can be seen that bran prices will continue to run strongly in future.

The theoretical profit situation of flour processing enterprises has continued to increase, driven by weak raw material prices and strong bran prices.

In Hebei, large flour enterprises have a theoretical profit of 75 yuan/tonne and small flour enterprises 30 yuan/tonne; in Shandong, large flour enterprises have a theoretical profit of 70 yuan/tonne and small flour enterprises 30 yuan/tonne; in Henan, large flour enterprises have a theoretical profit of 80 yuan/tonne and small flour enterprises a theoretical profit of 35 yuan/tonne.

No Hope of a Rise in the Wheat Market Ahead

The state auction of temporarily stored wheat, scheduled for 21 July at the Anhui Grain Wholesale Market and its networked markets, concluded smoothly. This auction planned to sell 847,401 tonnes of wheat, with an actual transaction volume of 5,933 tonnes and a transaction rate of 0.7%. Last week's temporary storage auction transaction rate fell further. Indeed, temporarily stored wheat, like temporarily stored corn, has been met with complete indifference.

This year's average wheat price entered a downward trend from May. Even after new wheat came onto the market on a large scale and market-support purchasing began, there was still no obvious improvement.

A survey of the main purchasing entities on the market shows that most of them, after buying a small amount of new grain early on, are now mostly taking a wait-and-see attitude. In fact, traders sell grain in order to profit from later price rises; with no obvious upward momentum visible in the outlook, their enthusiasm for buying grain is naturally not high.

Judging from the current domestic wheat supply and demand pattern, this year's wheat market supply will be the most ample since 2011. With this year's wheat harvest “certain” to be bumper, even regions such as Hebei and Shandong, which are normally in a tight balance between supply and demand, can feel the ample supply of wheat. Other regions need hardly be mentioned; without market-support purchasing to prop things up, wheat prices could be even less encouraging.

As for demand, the overall predicament of domestic flour enterprises in 2015 means their overall demand for wheat is also relatively sluggish, while the other main source of wheat demand——feed demand——has lost a large share of feed substitution, under the combined effect of imported grains and corn failing to surge as expected in July and August.

With flour demand showing no growth, feed demand falling sharply and, on top of that, the stimulus of higher output, this year's wheat market will be the most amply supplied in recent years.

From this it is not hard to foresee that, if no strong factors (such as policy) support the wheat market in future, wheat prices will continue to run steadily on the existing basis, making this the most “stable” year for wheat prices.