Why the Northern Wheat Purchasing Peak Is Slow to Appear

The 4-month concentrated wheat purchasing period has quietly passed its halfway point. Since the 2015 summer harvest, the buying and selling of new wheat has been less active than in previous years, and market conditions appear weaker year on year.

Good wheat prices stabilize, while low-quality wheat is cheap and hard to sell

Since mid-July, the heat in the new wheat purchase and sale market in the main producing areas has cooled somewhat compared with earlier, and prices for wheat of better quality have basically stabilized, moving around the minimum purchase price; while prices for poor-quality wheat have continued to weaken amid weak demand. In particular, some poor-quality wheat in the southern wheat areas is not only cheap but also difficult to sell.

At present, the purchase price of new wheat in southern Hebei, northwestern Shandong and northern Henan is mostly 1.2-1.22 yuan/jin, down 0.05 yuan/jin from the same period last year; in central and eastern Henan and southwestern Shandong, the purchase price of new wheat is mostly 1.19-1.21 yuan/jin; in northern and central Anhui and northern Jiangsu, the purchase price is mostly 1.17-1.19 yuan/jin, all down 0.04 yuan/jin from the same period last year.

Because the state had not relaxed the purchase standards for wheat with unsound kernels, a large amount of wheat with relatively poor quality in some areas of the southern wheat region has remained stuck in the circulation chain this year, and the phenomenon of low prices and difficulty selling is fairly obvious. At present, the market purchase price of white wheat in Hubei province with 12%-20% unsound kernels and 13% moisture is 1.04-1.08 yuan/jin, down 0.06-0.08 yuan/jin from mid-June. Some traders are unable to move the large quantities of unsound-kernel wheat they purchased earlier.

Recently, the Anhui provincial government relaxed the minimum purchase standards for newly added and rotated-in wheat in provincial, municipal and county reserves, widening the standard for unsound kernels from 10% to 15%. The relaxation of wheat purchase standards in some southern areas helps solve the problem of poor-quality wheat being unsalable.

Policy factors support wheat prices, making a sharp fall difficult

Although relevant state policies indicate a need to change the market expectation of rigid upward adjustment of grain prices, weaken the “income protection” function of the minimum purchase price policy, and better let the market mechanism play its role, as a “staple food” variety, wheat has not seen any change in the overall arrangement that the state continues to implement the minimum purchase price policy. As the state minimum purchase price policy continues to be implemented, the bottom support for the wheat market will continue to exist.

The reserve floor price for state wheat auctions, an important channel of market supply, is stable. At present, the floor price for the release of second-grade temporary reserve wheat is 1.25 yuan/jin, basically flat with the current delivered price of old wheat and higher than the purchase price of new wheat. Although current old wheat market buying and selling is light, prices are also relatively stable, and in the short term there are no signs of any factor that would cause old wheat prices to fluctuate sharply. With old wheat prices as a reference, it is also difficult for new wheat prices to fall sharply.

Affected by weak demand, although market participants were cautious in purchasing wheat at market entry during this year's summer harvest, the market behavior of quality commanding a premium has been fully reflected. Traders in various places remain fairly active in purchasing better-quality wheat, while enthusiasm for purchasing poorer-quality wheat is not high. It can be said that “good-quality wheat is hard to buy” and “poor-quality wheat is hard to sell” coexist.

The current wheat purchase price is below market expectations and weaker than the same period last year. This is related both to the weakened policy driving effect this year and to the current high temperatures, weak flour market demand, low operating rates of flour milling enterprises and low purchasing enthusiasm. The market expects that after September, when the flour consumption peak season begins, the wheat market may improve somewhat.

High-quality wheat remains tight, imports continue to increase

Institutions estimate that because the planted area of strong-gluten wheat decreased this year and some strong-gluten wheat growing areas suffered rainy weather, the quality of new wheat declined and the output of newly produced strong-gluten wheat fell, with the market estimating it at about 3 million tons.

Affected by the tight supply of high-quality wheat, prices of high-quality strong-gluten wheat in the main producing areas have shown an obvious upward trend since coming to market this year. In recent times, although ordinary wheat prices have been stable to weak, high-quality wheat prices have remained firm.

At present, the market purchase price of the high-quality wheat Jinan 17 in Shandong is 2,640 yuan/ton, the purchase price of Shiluan 02-1 in Hebei is 2,800 yuan/ton, and the purchase price of Zhengmai 366 in Henan is 2,840-2,900 yuan/ton, with the price gap with current ordinary wheat reaching 420-460 yuan/ton.

Customs data show that in June China imported 429,100 tons of wheat, up 282% from the same period last year and up 16.69% from the previous month. Wheat imports have increased sharply for two consecutive months.

Market participants believe that although the linkage between domestic and international wheat markets is not strong, under the pattern of a huge domestic-international price gap and tight supply of domestic high-quality wheat, wheat imports will increase in the second half of the year, which will accordingly increase supply pressure on the domestic market.