Wheat Price Trend Analysis: Market May Remain Strong After a Period of Consolidation

In mid-November 2016, affected by the continued high volume of wheat auctions, market bullish sentiment toward future wheat prices weakened, and wheat prices in major producing areas basically stabilized at high levels. Monitoring by the China Grain Network Data Center showed that as of November 17, the average transaction price of third-grade white wheat in major grain and oil wholesale markets nationwide was 2,479 yuan/ton, down 4 yuan/ton week-on-week; the Sinograin National Wheat Purchase Price Index for the 44th period of 2016 was 139.00, down 0.35% week-on-week.

According to an announcement published by the National Grain Trade Center on November 21: upon notice from relevant national authorities, starting from November 22, 2016, 100,000 tons of 2013-produced Jiangsu minimum purchase price wheat will be sold. For details, please refer to the transaction announcement and transaction list.

At this point, the national auction of 2015-produced wheat has expanded to three provinces: Hebei, Shandong and Jiangsu.

Supply and demand conflicts gradually easing, wheat prices mostly stabilizing at high levels

Since entering November, the auction market has increased its volume, and market purchasing and sales activity has clearly cooled compared with October. At the same time, affected by weakened bullish sentiment, some grain holders' willingness to sell wheat has also increased. The recent supply and demand conflict in the market has basically eased, and wheat prices in major producing areas have mostly stabilized at high levels.

On November 18, the purchase price of ordinary medium wheat delivered to flour mills in Jinan, Shandong was 2,520-2,580 yuan/ton; in Shijiazhuang, Hebei it was 2,540-2,600 yuan/ton; in Zhengzhou, Henan it was 2,440-2,500 yuan/ton; in Xuzhou, Jiangsu it was 2,460-2,520 yuan/ton; in Suzhou, Anhui it was 2,440-2,520 yuan/ton, basically flat week-on-week. According to monitoring, since August, the overall cumulative increase in ordinary wheat prices in major producing areas has generally exceeded 200 yuan/ton.

Since November, because ordinary wheat prices have mostly stopped rising and stabilized, affected by this, prices of high-quality strong-gluten wheat in major producing areas have also basically remained stable. Currently, the warehouse entry price of Gaoyou 2018 medium-quality wheat in Shijiazhuang, Hebei is 2,700 yuan/ton, up 20 yuan/ton week-on-week; the purchase price of Zhengmai 366 medium-quality wheat in Yanjin, Henan is 2,560 yuan/ton, up 10 yuan/ton week-on-week; the purchase price of Shiluan 02-1 medium-quality wheat in Dezhou, Shandong is 2,680 yuan/ton, stable week-on-week.

Recently, because wheat prices in North China have remained stable and corn (1,564, -4.00, -0.26%) prices in some areas have risen somewhat, the corn-to-wheat price ratios in various places have been slightly raised. Currently, the corn-to-wheat price ratio in Shandong is 0.72, basically flat with last week; in Hebei it is 0.66, up 0.01 from last week; in Henan it is 0.73, up 0.01 from last week.

Flour ex-factory prices stable, bran price gains particularly eye-catching

Because wheat prices have recently stabilized at high levels and raw grain procurement remains difficult, the operating rate of flour mills has basically remained at a low level. Looking at the operating situation of different enterprises, large and medium-sized enterprises have been relatively stable in operation, while small enterprises have seen a clear decline in operating rates or even shutdowns. According to monitoring, the current average operating rate of flour mills is 47%, down 7 percentage points from the end of September.

On November 18, the ex-factory price of special first-grade flour of flour mills in Shijiazhuang, Hebei was 3,100-3,160 yuan/ton; in Dezhou, Shandong it was 3,060-3,160 yuan/ton; in Zhoukou, Henan it was 3,060-3,120 yuan/ton; in Xuzhou, Jiangsu it was 3,040-3,100 yuan/ton; in Suzhou, Anhui it was 3,060-3,120 yuan/ton, basically flat week-on-week. According to monitoring, after flour prices in producing areas fell by 40-80 yuan/ton overall in July, they have generally rebounded by more than 140 yuan/ton since August, though still lower than the increase in wheat prices.

Because flour mills have low operating rates, bran supply is limited, and as the weather turns cooler, storage time is extended. Recently, bran prices in various places have seen “eye-catching” gains, rising again and again. Currently, the ex-factory price of bran of flour mills in Shijiazhuang, Hebei is 1,500 yuan/ton; in Linyi, Shandong it is 1,560 yuan/ton; in Zhoukou, Henan it is 1,520 yuan/ton; in Tangshan, Suzhou, Anhui it is 1,560 yuan/ton, up 20—40 yuan/ton week-on-week and up 80—120 yuan/ton from the price at the beginning of the month.

Although the current wheat and flour market still shows a “strong wheat, weak flour” pattern, the recent rise in bran prices has basically balanced the processing profits of flour mills. Monitoring shows that the current theoretical processing profit of flour mills in Shijiazhuang, Hebei is -27 yuan/ton; in Jinan, Shandong it is 6 yuan/ton; in Zhengzhou, Henan it is 63 yuan/ton; the average of the three places is 14 yuan/ton, up 3 yuan/ton week-on-week and up 48 yuan/ton from the average profit at the beginning of the month.

Wheat auction transactions generally improving

On November 15, a total of 2.6093 million tons of wheat was offered in competitive sales, with actual transactions of 206,200 tons, an increase of 16,500 tons from last week; the transaction rate was 7.9%, 0.72% higher than last week; the average transaction price was 2,506 yuan/ton, higher than last week's average transaction price of 2,500 yuan/ton.

On November 16, imported wheat auctions offered a total of 67,000 tons of 2013 U.S. No. 2 soft red winter wheat, with actual transactions of 25,600 tons, a decrease of 16,300 tons week-on-week; the transaction rate was 37.64%, down 15.94 percentage points week-on-week; the average transaction price was 2,505 yuan/ton, up slightly by 1 yuan/ton week-on-week.

On November 18, Changzhou Grain and Oil Storage and Transportation Co. in Jiangsu sold 3,939 tons of 2015-produced red wheat by competitive sale, all of which was traded. The starting price was 2,420 yuan/ton, the highest transaction price was 2,600 yuan/ton, the lowest transaction price was 2,545 yuan/ton, and the average transaction price was 2,577.23 yuan/ton. Bidding was intense, with the highest premium reaching 180 yuan/ton. It is reported that starting from November 22, Jiangsu Province will also begin regular sales of 2015 wheat, and it is estimated that the relatively tight supply and demand pattern in that local market will gradually ease.

Since entering November, the quantity of wheat offered has increased. Although the transaction volume has fluctuated considerably week-on-week and trading conditions among regions have also differed, overall trading has remained active. The transaction rates from November 1 to 15 were 16.68%, 7.18% and 7.9% respectively. For the competitive trading market that had remained sluggish since the second half of last year, describing it as “light at the end of the tunnel” is not an exaggeration. Because wheat market prices have continued to rise, prices in major producing areas have now reached or even exceeded auction procurement costs, and new and old wheat prices have basically converged. With this year's centralized purchase volume growing substantially and market-circulating grain sources relatively tight, the focus of flour mills' wheat procurement will gradually shift to auctions.

Wheat Prices Enter a Phase of Consolidation, Future Market May Still Be on the Strong Side