China's farmers are hoarding more of their wheat harvest this year, as they expect prices to rise in light of severe summer floods and fallout from the coronavirus.
Farmers in the country's main wheat-growing regions sold 49.3 million tons of their crop for commercial use and to state reserves as of Aug. 31, 20% less than in the same period last year, according to government data. Within that total, sales to the National Food and Strategic Reserves Administration, which stockpiles and manages the country's strategic food reserves, sank by almost 70% to 6.2 million tons. Wheat purchased by market participants such as mills accounted for about 86% of the 202 total, up from 70% last year, Xinhua News Agency reported on Aug. 14.
Public concern about food security has intensified this year amid the pandemic and severe flooding that has hit large swathes of farmland since June. Speculation that shortages of basic foodstuffs like rice and wheat could emerge has sent prices soaring even as government officials sought to reassure people that the country is self-sufficient in staple crops and that recent price fluctuations in the grain market are temporary.
"As state purchases of wheat dropped this year, market purchases accounted for a higher portion, increasingly becoming the main channel of wheat purchases," said Tang Ke, a senior official at the Ministry of Agriculture and Rural Affairs, at a news conference on Aug. 26.
Since 2006, the government has purchased wheat at annually state-set prices to ensure that any large decline in market prices would not discourage farmers from growing. When market prices are low, farmers can opt to sell more of their crop to state purchasers to support their income.
Watching and waiting
Currently, the market price for medium-quality wheat from China's major growing regions is around 2,421 yuan ($354) per ton. This compares with the minimum state purchase price of 2,240 yuan, according to government data. For high-quality wheat, the market price is around 2,440 yuan to 2,460 yuan per ton, compared with the state purchase price of 2,320 yuan, according to commodity research company Sublime China Information Co. Ltd.
Market prices have risen sharply since July amid widespread flooding and an increase in the price of corn, which has prompted many farmers to switch to wheat to feed their animals, adding to demand for the grain. The Zhengzhou grain wholesale market, located in the wheat-producing province of Henan in central China, saw high-quality wheat prices up 6.6% on year in July.
With farmers expecting further price increases, they are less interested in selling, instead preferring to wait for more money, according to multiple sources -- including farmers, grain traders and heads of flour mills.
However, some industry participants do not see prices rising much further. One insider told Caixin that flour mills will find it difficult to accept further increases while Tang, the agriculture ministry official, said that pressure on wheat prices will moderate as the jump in corn costs gradually eases.
China had a record wheat harvest this summer, with output increasing by 756,000 tons on year, or 0.6%, despite a 1.2% decline in planted acreage, according to data released by the National Bureau of Statistics.
Nevertheless, production in Henan, which accounts for nearly 30% of the country's wheat output, may have declined due to natural disasters, including a cold wave and drought that hit the southern part of the province earlier this year, industry insiders said. Official data shows that as of Aug. 5, the state purchased 9.1 million tons of wheat in the province, a year-on-year decline of 5.4 million tons -- the biggest drop of all major wheat-growing regions.
"Previously, we could harvest at least over 2,700 kilograms per acre, but this year we only had about 2,120 kilograms," a farmer in southern Henan Province told Caixin. One grain merchant in the area said he purchased less than 1,000 tons of wheat, half as much as in 2019, as many farmers saw declines in wheat production due to bad weather.
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