2010-07-20 10:43

Workers dry wheat at the Qiuhu grain depot in Jiangsu province. As of July, China's major wheat producing regions collectively purchased 21.71 million tons of wheat at the minimum purchasing prices set by the country in 2010, down 5.46 million tons from last year. [Xu Congjun / For China Daily]

Market concerns of supply deficit increase after cold growing season

BEIJING - Wheat futures edged up slightly on Monday, following a persistent expansion since early this month, as market concerns of a supply deficit grew on the back of this year's cold weather during the growing season.

Strong gluten wheat for January delivery on Zhengzhou Commodity Exchange rose 0.21 percent from last Friday's settled price to end at 2,357 yuan ($348) per ton on Monday. It was flat on Friday's closing price, the highest since 2003 when the exchange was opened for trading.

The wheat futures contract has cumulatively risen 2.17 percent, or 50 yuan per ton, so far in July amid a purchasing spree on the market.

"The low temperatures earlier this year that postponed the purchasing period for five to seven days sparked investor concerns about a production decline, persistently buoying the procurement price of wheat," said Jing Zhuocheng, an analyst at Shanghai CIFCO Futures Co.

Jing added that farmers' reluctance to sell their crops grew when expectations of higher purchasing prices rose after seeing continuous price hikes.

As of July, the nation's major wheat producing regions collectively purchased 21.71 million tons of wheat at the minimum purchasing prices set by the country in 2010, down 5.46 million tons from last year, according to cngrain.com, owned by China Grain Reserves Corp (Sinograin), China's major reserve manager.

China, the world's biggest grower of wheat, has set minimum buying prices for the crop, under which the government will purchase the wheat when the market price is below the State-set price to protect Chinese farmers' interests.

Sinograin was the only company designated to buy wheat for the government before China National Cereals, Oils and Foodstuffs Corporation (COFCO) and China Grain Logistics Group were approved this year.

The expansion of purchasers listed under the support program has also caused worries that more wheat will be reserved, despite expectations of lower production, analysts said.

But the current market price is much higher than the State-set minimum buying prices set at 1.72 to 1.8 yuan per kilogram.

As such, the top authorities have planned to investigate the execution of the minimum purchasing price program, a move to crack down on price-lifting activities to ease the soaring price of the crop.

"Even flour processing firms have joined the buying spree since July," Jing said, but she added that the overall grain supply remains sufficient, despite the fall in output.

"The room for price growth is limited. In fact, many traders have become very cautious to purchase wheat after such a robust price increase," said Zhang Haoran, an analyst at the National Grain and Oil Information Center.

Shanghai CIFCO Futures Co's Jing estimated that wheat for January delivery will fluctuate between 2,330 and 2,370 yuan per ton this year.