Wheat Price Trend: Expected to Maintain Steady Gains in the Short Term

The National Grain and Oils Information Center released its September supply and demand monthly report: In 2016, the national wheat planting area was 24.2 million hectares, unchanged from the previous month and an increase of 59,000 hectares compared with 2015; the national wheat yield per unit area was 5.313 tons/hectare, unchanged from the previous month's forecast and a decrease of 80 kg/hectare compared with 2015; China's 2016 wheat output was 128.58 million tons, unchanged from the previous month's forecast and a decrease of 1.61 million tons compared with 2015. In 2016/17, total domestic wheat consumption was 111.01 million tons, an increase of 1.24 million tons, or 1.1%, from the previous year. Of this, food consumption was 88.8 million tons, a decrease of 1.2 million tons, or 1.3%, from the previous year; feed consumption was 10 million tons, unchanged from the previous month's forecast and an increase of 3.5 million tons, or 54%, from the previous year; industrial consumption was 7.5 million tons, a decrease of 1.06 million tons, or 12.4%, from the previous year. China's 2016 wheat output was 128.58 million tons, a decrease of 1.61 million tons, or 1.23%, from the previous year. In 2016/17, total domestic wheat consumption was 111.02 million tons, an increase of 1.23 million tons, or 1.12%, from the previous year. The national wheat supply-demand surplus for 2016/17 is estimated at 20.57 million tons, a decrease of 3.14 million tons from the previous year.

Since August, the pace of wheat procurement has accelerated and is higher than the same period last year. Statistics from the State Administration of Grain show that as of August 31, various grain enterprises in the main producing areas had purchased a cumulative 66.38 million tons of wheat, an increase of 6.52 million tons year on year. In the most recent five days, procurement volume was 2.57 million tons, higher than 1.63 million tons in the same period last year, indicating a year-on-year acceleration in procurement speed. From August 1 to 31, the main producing areas purchased a cumulative 18.27 million tons of wheat, with an average five-day procurement volume of 3.04 million tons and a maximum five-day procurement volume of 5.77 million tons. By contrast, the average five-day procurement volumes in 2013, 2014 and 2015 were 1.17, 1.29 and 1.83 million tons respectively, and the maximum five-day procurement volumes were 2.23, 2.19 and 2.5 million tons respectively, all lower than the same period this year.

Recently, boosted by the Mid-Autumn Festival, the operating rate of flour milling enterprises increased somewhat this week. Wheat demand is strong, flour supply is ample, and flour prices have remained stable overall. The ex-factory price of special first-grade flour in Shijiazhuang, Hebei, was 3,020 yuan/ton; in Jinan, Shandong, it was 3,000 yuan/ton; and in Zhengzhou, Henan, it was 2,980 yuan/ton, basically unchanged from last week's prices.

As current flour demand is strong, flour milling enterprises are actively purchasing wheat, market sentiment is strongly bullish, and wheat prices in some areas have risen somewhat. The wheat purchase price in Shijiazhuang, Hebei, was 2,440 yuan/ton, and in Dezhou, Shandong, it was 2,420 yuan/ton, both up 20 yuan/ton from yesterday. In the short term, the tight supply of high-quality grain will persist, wheat demand is strong, and wheat prices are expected to maintain a steady upward trend.

Active short covering, improved wheat export prospects, and support from strength in the corn and soybean markets pushed U.S. wheat futures to close higher on September 7, with the CBOT December contract up 4.25 cents to close at 402.75 cents/bushel; the KCBT December contract up 0.75 cents to close at 411 cents/bushel; and the MGE December contract up 2 cents to close at 488 cents/bushel.