China's wheat prices soar on supply concerns, Ukraine crisis

BEIJING: China's wheat prices on Thursday topped 3,000 yuan per tonne for the first time this week as the war between two major wheat exporters Russia and Ukraine has fuelled panic in a market already worried over a domestic supply crunch, traders and analysts said.

Wheat prices across several key demand hubs in China, the world's top consumer and producer of the grain, have jumped by more than 100 yuan in the past week, with bids as high as 3,250 yuan per tonne in the south, data from Shanghai Intelligence Consultancy showed.

"Domestic wheat is rising like crazy," said a manager with a major trader.

"(The Ukraine crisis) has some play in it, but the fundamental reason still remains in the (domestic) supply-demand imbalance," said the manager, who declined to be named as he was not authorised to talk to media.

Wheat stocks held by Chinese traders and farmers were drawn down sharply in 2021 after local corn prices jumped to a rare premium over wheat to trigger millions of tonnes of wheat use by animal feed producers.

Wheat prices regained a premium over corn late last year, and gathered extra upside momentum in recent days after Russia's shock invasion of Ukraine and a subsequent volley of international sanctions on Moscow rattled global crop markets.

International benchmark Chicago wheat prices hit a 14-year high on Thursday, on concerns over prolonged supply disruptions following Russia's invasion of its rival grain exporter Ukraine.

UPSIDE ROOM

Traders say the market's momentum remains toward the upside at least in the near term.

"Domestic wheat prices are expected to rise further, unless the government releases significant amounts of grain from the (state) reserves," said Lv Fengyang, analyst with the agriculture section of Mysteel, a China based commodity consultancy.

"Moreover, there is the uncertainty in the global market with the war. The domestic market was also worried about the quality and output of the new wheat crop," Lv added, in reference to heavy rains that delayed winter wheat planting last fall.

To cool prices, Beijing has been conducting regular auctions from its state stockpiles for the past year or so, although the volumes offered have been reduced from around 4 million tonnes at some auctions in 2021 to around 500,000 tonnes recently.

The average price of wheat sold in auctions this year is up around 15% than last year.

GOVERNMENT WATCH

While Beijing has aggressively cracked down on commodity inflation over the past year, the higher wheat prices are not entirely unwelcome as they are expected to boost profits for farmers and spur increased domestic production.

However, with demand for milling flour and wheat feeding staying flat, the buying spree in recent days risks irking authorities if prices get too frothy, sources said. - Reuters