Wheat Price Market Analysis: Prices Running High, Expected to Climb Again in the Future
Since entering November, as the state has continuously increased the quantity of temporary reserve wheat released, the earlier market pattern of tight regional supply has eased somewhat. Wheat prices in the main producing areas have generally stopped rising and stabilized, with small fluctuations in some localities. Market monitoring shows that as of mid-November, the ex-factory price of ordinary wheat purchased by flour milling enterprises in the main producing areas was 2,500-2,600 yuan/ton, with fluctuations basically within a range of 20-40 yuan/ton compared with prices at the beginning of the month. The increase in the quantity of state temporary reserve wheat released has, to a certain extent, eased the contradiction between market supply and demand. It is expected that in late November, with relatively stable market purchasing and sales, wheat prices will mainly remain stable.
Wheat Prices Stabilize at High Levels, New and Old Wheat Prices Basically Converge
Since entering November, the state has acted in a timely manner to strengthen policy regulation, increasing the quantity of temporary reserve wheat released, and the heat of wheat market purchasing and sales has noticeably cooled compared with October. At the same time, affected by weakened bullish sentiment in the market, the willingness of some grain-holding entities to sell wheat has also strengthened. The recent contradiction between market supply and demand has basically been eased, and wheat prices in the main producing areas have mostly stabilized at high levels.
At present, the ex-factory price of ordinary new wheat of medium grade and above purchased by flour milling enterprises in Hebei and Shandong is 2,560-2,620 yuan/ton, and prices in most areas are already higher than the cost of temporary reserve wheat entering factories. The ex-factory price of ordinary new wheat of medium grade and above in Henan, Jiangsu, Anhui and Hubei is 2,500-2,560 yuan/ton, and prices in some areas are basically also on par with the factory-entry price of policy-based grain sources.
Since November, as the 2015 market-support wheat began to be released to the market, ordinary wheat prices have stopped rising and stabilized. Affected by this, high-quality strong-gluten wheat prices in the main producing areas have recently maintained a stable trend. At present, the purchase price of "Gaoyou 2018" medium-quality wheat in Shijiazhuang, Hebei is 2,680 yuan/ton, and the purchase price of "Jinan 17" medium-quality wheat in Jining, Shandong is 2,690 yuan/ton. The price difference between high-quality and ordinary wheat is about 100 yuan/ton, down 180 yuan/ton from the same period last year.
Affected by recent haze weather, corn prices in some areas have risen somewhat, and the corn-to-wheat price ratio has edged up slightly. At present, the corn-to-wheat price ratio in Shandong is 0.72, basically flat with mid-month; Hebei is 0.66, up 0.01; Henan is 0.73, up 0.01. Because wheat still does not have a price advantage over corn for feed use, the China National Grain and Oils Information Center estimated in November that wheat feed consumption for 2016/2017 would be 8 million tons, down 2 million tons from the previous month.
Wheat Strong, Flour Weak, but Bran Prices Balance Profits
According to feedback from flour milling enterprises, the operating rate of enterprises has recently declined somewhat, leading to a reduction in flour supply. In addition, as wheat prices are still at a relatively high level, flour prices have basically maintained a steady-to-strong trend.
At present, the ex-factory price of special first-grade flour from flour milling enterprises in the main producing areas is 3,060-3,180 yuan/ton, up 20-40 yuan/ton from the beginning of the month. According to monitoring, after flour prices in producing areas fell by 40-80 yuan/ton overall in July, they have risen by more than 140 yuan/ton overall since August, though still lower than the increase in wheat prices.
Because the operating rate of flour milling enterprises is relatively low, bran supply is limited, and as the weather turns cooler, storage time is extended. Recently, bran prices in various places have been "eye-catching," rising again and again. At present, bran prices from flour milling enterprises in the main producing areas have generally risen to 1,480-1,560 yuan/ton, up 120 yuan/ton from the beginning of the month.
Although the current wheat and flour markets still show a pattern of "strong wheat, weak flour," the recent rise in bran prices has basically balanced the processing profits of flour milling enterprises. Monitoring shows that the current theoretical processing profit of flour milling enterprises in Shijiazhuang, Hebei is -27 yuan/ton, Jinan, Shandong is 6 yuan/ton, and Zhengzhou, Henan is 63 yuan/ton, with the average of the three places at 14 yuan/ton, up 48 yuan/ton from the average profit at the beginning of the month.
Auctions Gradually Improving, Deleveraging Welcomes an Opportunity
Since entering November, the quantity of state temporary reserve wheat released has increased. Although the transaction volume has fluctuated considerably week on week and trading conditions among regions have also differed, overall trading has still been active. In the three auctions from November 1 to 15, the transaction volumes were 473,200 tons, 189,700 tons and 206,200 tons respectively, and the transaction rates were 16.68%, 7.18% and 7.9% respectively. For the auction market that had remained sluggish since the second half of last year, it is not excessive to describe it as "a sudden glimpse of hope."
From the perspective of regional market transaction conditions, after Hebei and Shandong experienced large auction transactions at the beginning of the month, their transaction rates in the last two auctions declined, indicating that the tight grain source situation in the two places has been basically eased. Since November, wheat transaction volume in Jiangsu has continuously increased. The main reason is that the quality of grain sources stranded in the Jiangsu market is generally poor, and the supply of wheat meeting the quality requirements of flour milling enterprises is relatively tight.
On November 18, Changzhou Grain, Oil Storage and Transportation Co. in Jiangsu auctioned 3,939 tons of red wheat produced in 2015, all of which was sold. The starting bid 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. Competition in the auction was fierce, with the highest premium reaching 180 yuan/ton.
It is reported that starting from November 22, Jiangsu Province also began regularly releasing 2015 market-support wheat. It is estimated that the market pattern of tight supply and demand in that area will gradually ease.
Recently, because wheat market prices have continued to rise, prices in the main producing areas have reached or even exceeded the procurement cost of policy-based grain sources, and new and old wheat prices have basically converged. The author believes that the channel for temporary reserve wheat to enter the market has basically been opened. Under the circumstances of a large increase in this year's centralized procurement volume and relatively tight market-circulating grain sources, the focus of wheat procurement by flour milling enterprises later will gradually shift to auctions, and the state's policy-based wheat "deleveraging" may usher in a new opportunity.
Demand Enters Peak Season, Wheat Prices Will Still Be on the Strong Side
According to convention, after entering December, flour demand gradually becomes brisk, and wheat procurement demand increases. Increased demand will become an important factor driving wheat prices upward. Because the 2017 Spring Festival is earlier than the previous year, flour milling enterprises may start pre-holiday stockpiling earlier. Supported by this, it is expected that wheat prices still have a relatively high probability of running on the strong side.
From the perspective of supply and demand conditions in the circulation market, high-quality wheat in the market will become increasingly scarce over time. Although some large flour milling enterprises mostly procure grain sources through the state trading market, some small and medium-sized enterprises will still rely on market wheat to maintain production, and tight market grain sources will continue to support wheat prices.