New Wheat Purchasing Priced by Quality, Market Trends Clearly Diverging
Currently, the harvest of new wheat in China's main producing areas is basically complete. According to the Ministry of Agriculture's crop monitoring, this year's summer grain is expected to achieve another bumper harvest, with total output reaching a new high. Because the market "does not lack grain," and affected by weather, the overall pace of new wheat purchasing in the main producing areas has been slow. Due to uneven wheat quality across regions, new wheat prices and market purchasing intentions have shown clear divergence.
New wheat prices will still rise slightly while remaining stable
Quality divergence in wheat prices will be fairly obvious in the later period
Since the launch of the state-supported price floor purchasing for wheat in the main producing areas at the end of May, new wheat prices have moved up from earlier low levels toward the state minimum purchasing price (1.18 yuan per 100 jin for national standard third-grade wheat) and have operated relatively steadily. According to the Ministry of Agriculture's monitoring of 6 wheat plan implementation areas including Henan, the average purchasing price of wheat by state-owned grain enterprises rose from 117.7 yuan per 100 jin around June 10 to 118.35 yuan around June 20, while the purchasing price by individual grain traders rose from 112.72 yuan to 113.48 yuan; compared with the same period last year, the current purchasing price of state-owned grain enterprises is 0.25% lower, and that of individual grain traders is 1.38% lower. At the same time, total society-wide wheat purchasing in the main producing areas is substantially lower than the same period last year. According to statistics from the Henan Provincial Grain Bureau, as of June 25, the province had purchased a cumulative total of 5.4 million tons of wheat, a year-on-year decrease of 4.83 million tons.
Abundant grain sources, declining wheat quality in some areas, and cautious market entry by purchasing entities
The main reasons for the above characteristics and trends in this year's new wheat market are as follows:
Market entities are cautious in purchasing. Since the beginning of this year, the wheat market has generally operated weakly, and various entities are not optimistic in their judgment of the later market situation. In the early period after new wheat came onto the market, wait-and-see sentiment was relatively strong, and many market entities delayed the time for purchasing new wheat, causing the opening price of new wheat to be generally low. Among the several types of entities participating in purchasing, state-owned grain purchasing and marketing enterprises mainly conduct purchasing for reserve grain rotation and price floor purchasing, and the volume of self-operated trade is not large; market grain sources are abundant, flour processing enterprises purchase rationally, do not offer higher prices to purchase, and do not buy high-priced grain; some private traders had poor operating results last year and, limited by funds and sites, no longer rashly hoard grain.
The launch of price floor purchasing was not timely enough. Since new wheat came onto the market in mid-to-late May, because the market average purchasing price was lower than the floor price, Jiangsu Province took the lead in launching price floor purchasing on May 26, Hubei, Anhui, and Henan provinces launched the price floor plan on May 27, May 28, and June 1 respectively, and Shandong launched it in Zaozhuang, Heze, and Jining from June 17, with the launch scope increasing by two cities over the previous year. However, according to the author's research, although the provinces clarified the timing for launching the plan relatively early, relevant departments set many preconditions for launching price floor purchasing, the review procedures for launch were quite strict, and purchasing funds were also slow to arrive, resulting in price floor purchasing not truly getting underway in some areas.
New wheat quality declined in some areas. This year, some areas in Hubei, Anhui, Jiangsu, and southwestern Shandong encountered continuous rainy weather in the middle and late stages of wheat growth, and pests and diseases such as wheat aphids, fusarium head blight, and powdery mildew occurred more severely than in previous years in some plots; in southern and central Henan, severe convective strong winds and hail occurred in some areas on the evening of May 6, causing wheat lodging. In the affected areas mentioned above, wheat had a higher proportion of unsound kernels and lower quality, resulting in low market purchasing enthusiasm, and purchasing has basically stopped at present. In areas with good quality, purchasing progress is normal or faster than the same period last year. The sharp decrease in society-wide purchasing in Henan Province compared with the same period last year was mainly due to a notable decrease in purchasing volume and relatively low prices in southern areas such as Nanyang and Zhumadian, while wheat quality in northern Henan was good and purchasing progress was normal. In Jining, Shandong, wheat of second grade or above accounted for 70% of total output this year, and purchasing progress was relatively fast; by June 19, the city had purchased a cumulative total of 178,000 tons of new wheat, a year-on-year increase of 38,700 tons.
The later market will be basically stable, with price divergence among wheat of different qualities fairly obvious
Taking comprehensive account of the fundamentals of domestic and global wheat supply and demand, wheat market regulation policies, and the domestic macroeconomic situation, it is expected that under the support of price floor purchasing, new wheat prices will still rise slightly while remaining stable in the later period, but after price floor purchasing ends at the end of September, the market will still operate weakly, while high quality at a high price and quality divergence will be fairly obvious.
Domestic wheat supply and demand fundamentals are loose. According to Ministry of Agriculture information, this year's summer grain area is expected to reach 415 million mu, a year-on-year increase of more than 1 million mu, yield per unit area is expected to increase, and total output will reach a new high. Domestic wheat inventories will further increase, market supply will be even more ample, and prices lack support for rises. At present, the auction transaction volume of state temporary stored wheat remains at a relatively low level, and the transaction rate continues to decline. On June 17, the total volume offered was 1.1876 million tons, with an actual transaction volume of 33,100 tons, and the transaction rate was only 2.78%. Since the beginning of this year, cumulative transactions of state temporary stored wheat auctions have reached 4.5087 million tons, a year-on-year decrease of 5.4521 million tons.
Flour processing and feed demand are sluggish. Domestic economic growth is slowing, market demand is weak, and the flour processing and feed industries are in recession. At present, some large and medium-sized flour enterprises are maintaining market share at a loss, while some small enterprises have suspended production periodically or gone bankrupt. The amount of wheat used for food is basically maintained at a normal to weak level. However, because wheat quality has declined in some areas and the supply of high-quality wheat is tight, the price trend of high-quality wheat in the later period will be stronger than that of ordinary wheat. From the perspective of wheat feed demand, domestic corn had a bumper harvest in 2014, and corn prices have generally operated at low levels. Since the beginning of this year, the price difference between wheat and corn in the main producing areas has been around 350 yuan per ton; recently, the price difference between new wheat and corn has also been 100-200 yuan, and wheat replacing corn as feed does not have a price advantage. This year, unsound kernels in wheat in some areas exceeded the standard, and some may flow into the feed market, but because the corn market is operating weakly and imports of substitutes such as barley and sorghum are strong, from January to April 3.663 million tons of barley and 3.265 million tons of sorghum were imported, a year-on-year increase of 1.5 times and 2.2 times respectively. Therefore, wheat feed usage is not enough to drive the market.
Global wheat production exceeds demand for the third consecutive year. The June report of the Food and Agriculture Organization of the United Nations (FAO) shows that global wheat production in 2015/16 is expected to be 723 million tons. Although it is down 0.8% (6.1 million tons) from the record level in 2014/15, it is still the second-highest level in history; global wheat consumption is expected to be 716 million tons, a year-on-year increase of 0.5% (3.6 million tons); production exceeds consumption by 7.2 million tons, and global wheat production has exceeded demand for three consecutive years, with inventories continuing to increase, expected to reach 201 million tons, a new high in 13 years, a year-on-year increase of 1.4% (2.8 million tons). Under a loose supply and demand pattern, international wheat prices in the second half of the year are more likely to fall than rise. From the perspective of domestic and international price differences, in mid-June the after-tax landed price of U.S. hard red winter wheat was 0.59 yuan per jin lower than the sales area price of domestic high-quality wheat. Although the linkage between domestic and international wheat markets is not strong, under the pattern of huge domestic and international price differences and tight supply of domestically produced high-quality wheat, China's wheat imports may increase in the second half of the year, further increasing domestic supply pressure.
Henan: Price floor purchasing dominates the market, "good wheat" prices move higher
Just after the summer harvest, Henan Province, which produces more than a quarter of the nation's wheat, once again achieved a bumper harvest. According to forecasts by relevant departments, this year Henan's 81.385 million mu of wheat is expected to average more than 800 jin per mu, with total output reaching about 66 billion jin. Based on an ordinary-year commodity rate of about 70%, the province's wheat commodity volume this year is about 47 billion jin.
Wheat quality is good and prices are high in most areas
This year Henan Province continued to implement the price floor purchasing plan, and the floor purchasing price for wheat was the same as last year. With national standard third-grade wheat produced in 2015 as the standard grade, the minimum purchasing prices for white wheat, red wheat, and mixed wheat are all 1.18 yuan per jin. From June 1, Henan successively launched wheat price floor purchasing from south to north.
On June 17, at the Daokou branch warehouse of the Anyang direct warehouse of Sinograin in Hua County, trucks selling wheat lined up in long queues waiting for inspection. "Our warehouse began purchasing new wheat on June 12 and can purchase more than 700 tons per day. This year Hua County's wheat quality is relatively good, first-grade wheat can account for more than 90%, second-grade wheat is less than 10%, and there is almost no third-grade wheat," said Niu Fulin, deputy director of the Daokou branch warehouse in Hua County. The grain depot strictly implements the wheat purchasing policy, with first-grade wheat at 1.22 yuan per jin.
In Hua County in northern Henan, because high-standard grain field construction was implemented, farmland infrastructure has been continuously improved, the level of mechanized operations has risen, and supporting scientific and technological services have followed up, wheat again achieved a bumper harvest. In the field of Hou Shanpo in Zhangzhuang Village, Baidaokou Town, Hua County, which had just been harvested, Hou Shanpo said: "This year's wheat output is not bad, with more than 1,100 jin per mu. Now that wheat has just come onto the market, although the price is around 1.22 yuan/jin, it is still somewhat low compared with the same period last year. I am also busy with farm work recently, so I will wait before selling."
At a grain processing enterprise in Zhouying Township, Shenqiu County, farmer Wang Ke, who was selling wheat, was grinning from ear to ear over the 7,500 kg output from his family's 12 mu of land. After instrument testing, his family's wheat was classified as third-grade mixed wheat, with a market purchasing price of 1.18 yuan/jin. "Compared with before, the purchasing process at this year's grain purchasing point is much more standardized. Everything is based on the instruments. They pay whatever should be paid. There is nothing to argue about. Quality, grade, and weight are all fair." Wang Ke, who received more than 10,000 yuan in grain payment, said excitedly.
According to the relevant person in charge of the Henan Provincial Grain Bureau, the wheat quality in most areas of Henan this year is the best in recent years, with high test weight and low unsound kernels, and overall wheat quality is good. From the quality of purchased grain, wheat quality grades in northern and eastern Henan are mostly second grade or above, and a fairly large portion reached first-grade quality.
Price floor purchasing dominates, and the market has begun to show "grabbing good wheat"
Based on calculations for a normal year, Henan Province's wheat price floor purchasing volume this year is about 10 million tons. "Together with the provincial grain bureau and the Henan branch of the Agricultural Development Bank of China, we have verified two batches of 1,272 price floor purchasing and storage warehouse points, and prepared 12 million tons of empty warehouse capacity, so that 'warehouses wait for grain,'" introduced the relevant person in charge of the comprehensive office of the Henan branch of Sinograin.
Beside the gate of the Zhengzhou Zhongyuan State Grain Reserve Depot in Henan Province, a poster publicly announced policy information such as the grain varieties, purchasing prices, quality standards, methods for increasing or deducting weight for moisture and impurities, settlement methods, and implementation time under the price floor purchasing policy. From time to time, farmers coming to sell grain carefully read it.
"A large amount of purchasing of municipal reserve grain rotation and provincial reserve grain rotation began a few days ago, and the current price still follows the floor price," introduced Li Baomin, deputy director of the Zhengzhou Zhongyuan State Grain Reserve Depot. "This year the state's subsidy funds for reserve grain were allocated later, and as of now we have purchased only 30,000 tons. As long as no one bids up the price, we expect to purchase another 10,000 tons according to the state minimum purchasing price."
In Xinzheng City, a grain broker surnamed Li who purchases wheat on behalf of an enterprise said that of the more than ten tons of wheat purchased from farmers each day, some involves directly helping farmers harvest, dry, and bag the grain, with a price of about 1.1 yuan/jin. Farmers save trouble and are relatively satisfied with the price.
Tangyin in Anyang City is a grain production cluster area and also a flour product processing cluster area. Xiong Guangfa, general manager of Jinmailang Flour (Anyang) Co., Ltd., introduced that a phenomenon of scrambling to purchase wheat has already appeared. "This year Anyang's wheat quality is generally quite good. The average price has now reached 1.22 yuan/jin, and most wheat has exceeded the state minimum purchasing price. If wheat test weight exceeds the standard, the price we offer will be even higher."
According to statistics from the Henan Provincial Grain Bureau, as of June 20, the province had purchased a cumulative total of 3.76 billion kg of wheat. However, affected by low-temperature weather since May, this year's wheat harvest period was delayed by one week compared with previous years, and the purchasing volume decreased by 3.85 billion kg compared with the same period last year.
Experts from the China Grain Network Yida Research Institute believe that most wheat processing enterprises in Henan Province are currently in a state of thin profit or loss. Out of consideration for cost control, purchasing enthusiasm is not high, and other trading entities are also not optimistic about later wheat price increases, so purchasing enthusiasm has also declined somewhat. This year's price floor purchasing will still occupy a dominant position.
The purchasing situation for low-quality wheat is not optimistic. "It is worrying to death. Because the quality does not meet the state reserve grain purchasing standard, it can only sell for 1.05-1.1 yuan per jin," said Liu Xueyou, a major grain grower in Xi County. He has hardly sold any of the more than 10,000 mu of wheat he planted. At Liu Xueyou's grain storage yard, the reporter saw a large expanse of wheat stacked in bags. "This is only part of it. I will sell it all together when the price is higher." Liu Xueyou feels that this year's wheat price is not quite reasonable. "The wheat price in Xi County as a whole is not as good as last year. Setting aside wheat quality, it should at least reach 1.2 yuan/jin."
In addition, encountering continuous rain during the wheat harvest, Liu Xueyou had to use his own dryer. "Just drying alone cost me an extra six fen per jin." Liu Xueyou complained that this year was originally a high-yield year, but at the current price, income cannot increase.
Yang Haibin, a grain broker in Neixiang County, Nanyang, told the reporter that this year is also the worst year in terms of benefits for grain brokers. The wheat purchased is of poor quality, and the proportion of unsound kernels is too high. "Now many brokers are stuck with the wheat they purchased because its quality is not up to standard, and they are all losing money. I still have more than 200 tons of wheat stuck in my hands."
Affected by the summer harvest weather, some farmers in Nanyang City mixed wheat together during harvesting, causing overall quality to decline. According to Ma Bing, head of the Guangwu branch warehouse of the Nanyang Xiangdong direct warehouse of Sinograin, a very large portion of wheat exceeded the sprouting rate standard, and once it exceeds 10%, it does not meet the standard for price floor grain purchasing.
The reporter learned that this year the weather during the wheat harvest season in places such as Xinyang and Nanyang was unfavorable, making the overall proportion of unsound kernels in wheat relatively high and generally affecting quality, though the test weight of the wheat was relatively good. At present, relevant local departments have begun to take measures and coordinate the organization of some flour mills, feed mills, and other grain production and processing enterprises to carry out purchasing.
Anhui: New wheat quality declines, purchasing progress slows
Anhui Province's wheat price floor purchasing has been launched for some time, yet this year's wheat sales situation has encountered unprecedented "coldness." What exactly is the reason?
In early June, the reporter found during interviews in rural areas of Yongqiao District, Suzhou City, that local state-owned grain stations were rarely open, private grain stations also seldom purchased grain, and most farmers stored their grain at home, unable to sell it. On June 11, the wheat harvest in Suzhou was nearing its end. In previous years at this time, both price floor purchasing and private purchasing had already started on a large scale. However, among them, wheat with an unsound kernel proportion of 10%-20% accounted for about 20%, and wheat with an unsound kernel proportion exceeding 20% accounted for about 40%.
According to the state price floor purchasing policy, wheat with an unsound kernel proportion greater than or equal to 10% must not be purchased. "For so many years, wheat with an unsound kernel proportion exceeding 10% in the whole district has been rare, and wheat with an unsound kernel proportion exceeding 20% has been almost nonexistent. The emergence of this phenomenon this year is rare," said the person in charge of the Yongqiao District Grain Bureau. They adopted a method of entering villages and households to conduct a quality survey of wheat throughout the district and found that the proportion of unsound kernels was relatively large.
At the Nanqiao State Grain Depot located in Danzi Community, Yaopu Town, Nanqiao District, Chuzhou City, many trucks loaded with wheat were parked at the grain station but could not be weighed for a long time. Grain depot staff said that because there was more rain in the later period this year, wheat harvest was delayed and quality declined, especially with some wheat seriously exceeding the standard for unsound kernels. It is understood that more than half of the wheat in Chuzhou City has unsound kernels, with unsound kernels exceeding 10%.
On June 19, the reporter visited the Feixi branch warehouse of the Anhui Provincial Mechanized Grain Depot, a designated enterprise for price floor purchasing. There was none of the bustle of queuing to sell grain that the reporter had imagined. Only a few workers were busy drying grain on the drying yard, and it took quite a while before a truck of a grain seller arrived.
Wang Dagui, a grain broker from Yandian Township, told the reporter that the grain delivered this year amounted to several thousand jin, and 3 to 4 truckloads had to be delivered each day. But the quality of the wheat purchased this year is clearly not as good as in previous years, with more third-grade wheat and very little wheat of second grade or above. Aside from somewhat poorer quality and a price that cannot go up, everything else is fine. Grain can be delivered at any time, and it is weighed, inspected for quality, and paid for at any time.
Yu Shanzeng, head of the grain depot, introduced that the quality of wheat sold this year has indeed declined a lot, mainly because of high unsound kernels, so the grain depot put cleaning machines into use to clean impurities from the wheat entering the depot every day. Some surrounding grain stations temporarily stopped purchasing grain because they did not have cleaning machines.
What about market-based purchasing? The reporter then went to Feixi County Yandian Township Grain and Oil Co., Ltd., a private grain enterprise. "We have been purchasing normally, but the purchasing price cannot rise," introduced boss Ma Jiahong. They also found during purchasing that the quality of this year's wheat met standards at a relatively low rate. When wheat quality is poor, the price naturally decreases. Compared with previous years, the pace of this year's wheat entering warehouses is clearly much slower.
"Although the state announced the price floor purchasing policy in late May, it was not until June 10 that Yongqiao District launched 4 price floor purchasing points in only 4 townships with relatively good grain quality. We must both make every effort to purchase farmers' grain to avoid difficulties in selling grain, and resolutely safeguard quality control for the state grain depot." The person in charge of the Yongqiao District Grain Bureau stated directly the "dilemma" faced by state-owned grain purchasing enterprises.
The reporter saw that because unsound kernels increased compared with previous years, inspection difficulty increased, greatly prolonging the time for selling grain, and long lines formed in front of the price floor purchasing points. At the gates of other major state-owned grain stations, many farmers came every day to ask about the opening time for weighing. Some private grain stations that competed with state-owned grain stations in previous years were unwilling to purchase grain this year, the reason being concern that if they purchased substandard grain, there would be no sales outlet.
It is reported that relevant departments in Anhui Province have already noticed this trend. Relevant departments decided to add large vibrating screens, fans, and other grain sorting equipment as well as corresponding manpower to help farmers sort substandard grain into qualified grain as much as possible. For grain that still cannot meet purchasing standards after repeated sorting, state-owned grain purchasing enterprises will play the main channel role and help farmers contact feed mills and other sales channels to find an outlet for the grain.