China's Wheat Market Consolidating

April began with the news that the drought, which affected most of the North China Plain and the growing winter wheat crop, had been defeated. On the strength of this news, China’s National Grain and Oils Information Center released its current total wheat acreage at 24.01 million ha for the calendar year 2009. The number was a slight rise over 2008. Aggregate output for the year is expected to be 111 million tons, a slight drop over the previous year and obvious nod towards the effects of the drought. Over the next few months as the situation is better known, CNGCOC will adjust their numbers to reflect the effects of the drought.

Chart: Zhengzhou (ZCE) Wheat Futures

Spot prices have been stable to slightly higher while DCE futures have been in consolidation the last couple of weeks. There is a negative sentiment over wheat prices as the interest in buying from the government’s reserves is on the wane. One of the main causes of the sagging prices is the fact there is simply too much milling capacity. Even now, mills are not running at full capacity and heavy flour stocks are weighing on the market. In the short term, minimal price fluctuations are predicted though feed companies are expected to bump up their by-product purchases in the coming months.