Tight grain supply pushes new wheat prices up generally, cautious purchasing keeps price gap between high-quality and common wheat narrow

Driven by rising common wheat prices, the current price gap between high-quality and common wheat is narrow, and traders are purchasing at the right time. At the same time, rotation and restocking demand has increased in some regions, driving high-quality wheat prices up overall. However, affected by falling international wheat prices, China's wheat imports have increased somewhat. Customs data show that in August China imported 347,700 tonnes of wheat, up 22% month on month and up 8.8% year on year; from January to August, cumulative wheat imports reached 2.455 million tonnes, up 20.4% year on year.

Tight grain supply pushes new wheat prices up generally

This week, the factory-gate price of new wheat with moisture content within 12.5% and test weight above 770 g/litre at milling enterprises in Shijiazhuang, Hebei, was around 2,440 yuan/tonne; in Jinan, Shandong, around 2,420 yuan/tonne; in Zhengzhou, Henan, around 2,320 yuan/tonne. In Suzhou, Anhui, the factory-gate price of new wheat with moisture content within 13.5% and test weight above 770 g/litre was around 2,320 yuan/tonne; in Xuzhou, Jiangsu, around 2,320 yuan/tonne. In most areas, prices were up 20 yuan/tonne from last week and up 40 yuan/tonne from the beginning of the month.

Wheat prices in the main producing areas rose significantly in September, mainly for three reasons. First, driven by the Mid-Autumn Festival effect, major milling enterprises stocked up for the festival, their operating rates rose markedly, and demand for wheat purchasing increased significantly. Second, against the background of both lower wheat output and quality this year, the volume of wheat purchased under the minimum purchase price policy has already exceeded that of the same period last year, and the purchasing pace has been faster than a year earlier, strongly pushing up wheat prices; as of 15 September, about 27.70 million tonnes of wheat had been purchased nationwide under the minimum purchase price policy, higher than 20.04 million tonnes in the same period last year. Third, because of the progress of minimum-price purchasing, market grain supply is noticeably tighter than last year, traders have strong bullish expectations and a strong inclination to hold grain in anticipation of higher prices, which has also supported wheat prices.

The author expects that wheat prices will still mainly rise steadily later on, but because flour prices remain stable, a pattern of strong wheat and weak flour has emerged. Under the influence of strong wheat and weak flour, operating pressure on milling enterprises keeps increasing, and profits in the flour industry are thin.

As a result, milling enterprises' operating rates decline, wheat purchasing slows, and the pace of wheat price increases will also ease somewhat. It should be noted that the state usually announces the minimum purchase price for wheat for the following year in October, and the announcement of that price will have a relatively large impact on wheat prices later on, so continued attention is needed.

Cautious purchasing keeps the price gap between high-quality and common wheat narrow

This week, the factory-gate price of "Gaoyou 2018" wheat in Shijiazhuang, Hebei, was around 2,650 yuan/tonne; in Heze, Shandong, around 2,590 yuan/tonne; in Xinxiang, Henan, around 2,590 yuan/tonne. The factory-gate price of "Zhengmai 366" in Heze, Shandong, was around 2,560 yuan/tonne; in Zhengzhou, Henan, around 2,560 yuan/tonne. The factory-gate price of "Jinan 17" in Heze, Shandong, was 2,520 yuan/tonne; in Nanjing, Jiangsu, around 2,540 yuan/tonne. All the above prices were up about 60 yuan/tonne from early September.

Boosted by the Mid-Autumn Festival effect, common wheat prices rose noticeably in September, and the price gap between high-quality and common wheat once narrowed to 100 yuan/tonne, whereas in September last year the gap was basically stable at around 300 yuan/tonne. High-quality wheat prices remained stable earlier on for two reasons. First, this year common wheat output and quality both declined due to weather, while high-quality wheat producing areas were not greatly affected, with both output and quality better than last year. Second, purchasing competition in the high-quality wheat market is less intense than in the common wheat market; in the common wheat market, apart from minimum-price purchasing squeezing out grain supply, milling enterprises, some feed enterprises, grain depots and traders are also competing to purchase grain.

By contrast, the main purchasers in the high-quality wheat market are milling enterprises, grain depots and traders, and since high-quality wheat traders generally suffered losses last year, they have been more cautious in purchasing high-quality wheat this year.

Digesting inventories, flour prices remain stable  This week, the factory-gate price of special first-grade flour at milling enterprises in Shijiazhuang, Hebei, was around 3,020 yuan/tonne; in Jinan, Shandong, around 3,000 yuan/tonne; in Zhengzhou, Henan, around 2,980 yuan/tonne; in Xuzhou, Jiangsu, around 2,980 yuan/tonne; in Suzhou, Anhui, around 2,980 yuan/tonne, basically flat from last week. At present, the Mid-Autumn holiday has passed, and milling enterprises' operating rates have pulled back somewhat. Monitoring shows that this week milling enterprises' operating rate was around 57%, down 1 percentage point from last week.

Entering September, major flour mills stocked up for the Mid-Autumn Festival, all raised operating rates, flour output increased, and competition became fierce; flour enterprises all refrained from raising flour prices in order to protect market share. At present, the Mid-Autumn holiday has passed and flour enterprises' operating rates have pulled back, but because of heavy stocking before the festival, they need to focus on digesting inventories for a period after the festival, so there are temporarily no signs of factory-gate flour prices being raised, and they will remain stable in the short term.

There is still one week until the "National Day" long holiday, and flour prices are unlikely to rise before "National Day". But after the "National Day" long holiday, flour enterprises' inventories will basically have been digested, and at the same time, driven by rising wheat prices, flour prices will rise then.

To ensure profits, bran and wheat middlings prices are raised

At present, wheat prices are rising steadily while flour prices remain stable. At the same time, as the weather gradually turns cooler, wheat middlings and bran can be stored longer, and milling enterprises have raised the prices of both wheat middlings and bran in order to protect profits.

Monitoring shows that the current factory-gate price of bran at milling enterprises in Jinan, Shandong, is around 1,180 yuan/tonne; in Zhengzhou, Henan, around 1,200 yuan/tonne; in Shijiazhuang, Hebei, around 1,180 yuan/tonne; in Xuzhou, Jiangsu, around 1,200 yuan/tonne; in Suzhou, Anhui, around 1,210 yuan/tonne, all up 20-40 yuan/tonne from last week. The factory-gate price of wheat middlings in Shijiazhuang, Hebei, is around 1,640 yuan/tonne; in Zhengzhou, Henan, around 1,600 yuan/tonne; in Jinan, Shandong, around 1,570 yuan/tonne; in Guangzhou, Guangdong, around 1,740 yuan/tonne, with most areas up 20 yuan/tonne from last week.

Because wheat prices have risen, flour prices have remained stable, and wheat middlings and bran prices have been raised, milling enterprises' theoretical flour milling and processing profit has remained basically stable. Monitoring by the China National Grain and Oils Information Center shows that on 21 September, the theoretical flour processing profit of milling enterprises in Shijiazhuang, Hebei, was -49 yuan/tonne; in Jinan, Shandong, it was -48 yuan/tonne; in Zhengzhou, Henan, it was 54 yuan/tonne, with the average loss across the three places at around 15 yuan/tonne, basically flat from last week.