Wheat Price Market Analysis: Market to Remain Steady with a Slight Upward Bias, Low Chance of Another Sharp Rise
Since late November 2016, the wheat market in the main producing areas has been generally steady with a slight upward bias, and prices in some regions began to pick up again after a brief correction in the first and middle ten days of the month; affected by increasingly tight grain supplies in the circulation market, wheat auction transaction conditions have continued to improve. In the international market, global wheat inventories are ample, and with precipitation expected in the southern Great Plains of the United States in the coming weeks, drought conditions have been alleviated, and the price of nearby CBOT wheat contracts closed lower.
Monitoring by the China Grain Network Data Center shows that as of November 24, the average transaction price of third-grade white wheat in major grain and oil wholesale markets nationwide was 2,482 yuan/ton, up 3 yuan/ton week-on-week; the 2016 No. 45 issue of the Sinograin national wheat purchase price index was 139.17, up 0.12% week-on-week.
Although the peak demand season in the wheat market is approaching, market supply will be sufficient. As the auction reserve price for wheat is relatively stable, the wheat market under an almost single supply channel is unlikely to breed major changes. It is expected that wheat prices will continue to run steady with a slight upward bias before the Spring Festival, and the chance of another sharp rise is low.
Wheat Market Generally Steady with a Slight Upward Bias, Prices in Some Regions Edge Up
Since entering November, while increasing the quantity of wheat put up for auction, Shandong, Hebei and Jiangsu provinces successively released 2015 wheat, increasing market grain supply, and wheat prices in the main producing areas mostly stopped rising and stabilized in the first and middle ten days of the month. After entering the last ten days of the month, due to difficulty in purchasing high-quality grain in the market, combined with more haze and rainy weather in the North China and Huang-Huai regions, arrivals of wheat at flour milling enterprises decreased, and wheat prices in some regions showed signs of a slight rise again.
On November 25, the factory-gate purchase price of ordinary medium wheat by flour milling enterprises in Jinan, Shandong was 2,520-2,590 yuan/ton, in Shijiazhuang, Hebei was 2,540-2,620 yuan/ton, in Zhengzhou, Henan was 2,440-2,520 yuan/ton, in Xuzhou, Jiangsu was 2,460-2,540 yuan/ton, and in Suzhou, Anhui was 2,460-2,540 yuan/ton, with prices in some regions rising slightly by 20-40 yuan/ton week-on-week.
Prices of high-quality wheat in the main producing areas are running firm. At present, the factory-gate price of “Gaoyou 2018” in Shijiazhuang, Hebei is about 2,720 yuan/ton, in Heze, Shandong about 2,660 yuan/ton, and in Xinxiang, Henan about 2,660 yuan/ton; the factory-gate price of “Zhengmai 366” in Heze, Shandong is about 2,660 yuan/ton, and in Zhengzhou, Henan about 2,660 yuan/ton; the factory-gate price of “Jinan 17” in Heze, Shandong is 2,680 yuan/ton, and in Nanjing, Jiangsu about 2,640 yuan/ton, with prices in some regions up 40-60 yuan/ton compared with the beginning of the month.
Information from the Ministry of Agriculture's crop condition scheduling shows that autumn and winter sowing has progressed smoothly overall, with 300 million mu of winter wheat sown nationwide, completing 88.4% of the intended planting area. At present, soil moisture in the winter wheat regions is generally suitable, with the proportion of first-class winter wheat seedlings at 42.31% and second-class seedlings at 57.69%, slightly better than the same period last year.
Flour Prices Basically Stable, Bran Prices Continue to Strengthen
According to feedback from flour milling enterprises, flour sales have been average recently, and the operating rate of enterprises remains low. Although the overall operating level is still between 40%-50%, the operating rate of specialty flour can mostly reach 70%-80% due to relatively good market demand.
Last week, flour ex-factory prices in the North China and Huang-Huai regions were generally stable. Monitoring shows that the ex-factory price of special first-grade flour by flour milling enterprises in Shijiazhuang, Hebei was 3,100-3,180 yuan/ton, in Dezhou, Shandong was 3,060-3,160 yuan/ton, in Zhoukou, Henan was 3,060-3,120 yuan/ton, in Xuzhou, Jiangsu was 3,040-3,100 yuan/ton, and in Suzhou, Anhui was 3,060-3,120 yuan/ton, basically flat week-on-week.
Due to the low operating rate of flour milling enterprises, bran supply remains limited, and combined with increased demand for bran from feed and breeding recently, flour enterprises have a strong willingness to hold prices firm, and bran prices continue to rise. At present, the ex-factory price of bran in Shijiazhuang, Hebei is about 1,540 yuan/ton, in Jinan, Shandong about 1,560 yuan/ton, in Zhengzhou, Henan about 1,580 yuan/ton, and in Xuzhou, Jiangsu about 1,620 yuan/ton, all up 40-60 yuan/ton from last week.
At present, wheat prices in the North China and Huang-Huai regions have risen slightly, and the pattern of “strong wheat, weak flour” continues, but as bran prices continue to rise, the theoretical processing profit of flour milling enterprises has improved somewhat. Monitoring shows that the theoretical processing profit of flour milling enterprises in Shijiazhuang, Hebei is -21 yuan/ton, in Jinan, Shandong is 14 yuan/ton, and in Zhengzhou, Henan is 46 yuan/ton, averaging 13 yuan/ton across the three locations, up 4 yuan/ton from last week.
Market Grain Supplies Increasingly Tight, Auction Transactions Continue to Improve
Recently, flour milling enterprises have generally reported that due to tight grain supply in the circulation market, especially more limited high-quality wheat, even if wheat purchase prices are slightly raised, purchasing remains difficult, and some manufacturers have gradually shifted the focus of wheat procurement to auctions.
On November 22, a total of 2.7319 million tons of wheat was put up for competitive bidding sales, with an actual transaction volume of 321,900 tons, an increase of 95,700 tons from last week; the transaction rate was 11.78%, 3.88% higher than last week; the average transaction price was 2,504 yuan/ton, lower than last week's average transaction price of 2,506 yuan/ton.
From the transaction situation, the transaction rate for 2015 wheat remained at a relatively high level. This time, Hebei's sales plan for 2015 white wheat was 49,945 tons, with an actual transaction of 49,245 tons, a transaction rate of 98.6%, 35.13% higher than last week. Shandong's sales plan for 2015 white wheat was 98,700 tons, with an actual transaction of 32,754 tons, a transaction rate of 33.18%, 18.93% higher than last week. Jiangsu auctioned 2015 wheat for the first time, with a volume of 104,957 tons, an actual transaction of 69,603 tons, and a transaction rate of 66.326%.
On November 23, a total of 77,100 tons of imported 2013 US No. 2 soft red winter wheat was put up for auction, an increase of 10,100 tons week-on-week; the actual transaction was 27,100 tons, an increase of 1,500 tons week-on-week; the transaction rate was 35.06%, down 2.58 percentage points week-on-week.
At present, market wheat prices in the main producing areas have reached or even exceeded the auction procurement cost, and new and old wheat prices have basically converged. The market expects that, given the substantial increase in centralized purchases this year and the relatively tight grain supply in market circulation, auction transaction conditions will continue to improve later.
Wheat Prices Expected to Run Firm, Low Chance of Another Sharp Rise
Since October, affected by tight market grain supply and recovering demand, wheat prices in the main producing areas have risen noticeably, with wheat prices in North China in particular leading the market, and it can be said that wheat prices in some regions are already at a relatively high level. As the quantity of wheat put up for auction increases later, this will to some extent restrain market wheat prices from rising again, and the policy's “ceiling” effect will continue to show.