BEIJING: China has set its minimum support price for grade 3 wheat produced in 2018 at Yuan 2,300/mt ($345.94/mt), down Yuan 60/mt from current level — the first time a downward revision was made since the policy began in 2006. The MSP was set after estimating farm costs, supply and demand, as well as domestic and international market price trend and overall industry development, the country’s top economic body National Development and Reform Commission said in statement Friday.
China’s wheat MSP has been unchanged since 2014, at Yuan 2,360/mt for major wheat producing areas, despite a large overhang in global wheat supply pushing down international prices since 2015. The country’s domestic wheat supply has been procured and stored by state-owned grain companies under the government’s MSP program since 2006, to help safeguard farmers’ income and ensure adequate food supply. Market sources have been speculating on the possibility of a reduction in the MSP since the start of the year, with a senior official from China’s Development Research Center under the State Council forewarning the audience at the 18th China Grains Forum in early August to get ready for a change in the wheat MSP. “China risks repeating the corn situation for wheat, [where] if [the] MSP is not adjusted timely, the country is saddled with burgeoning stocks because of highly subsidized domestic prices, which in turn encourage farmers to grow more of the subsidized crops,” said a Chinese trader. NEW MSP HOPEFULLY COOLS DOWN HIGH DOMESTIC PRICES With over half of the country’s wheat supply this year currently held in government warehouses, domestic wheat prices have stayed high, sources said.
Chinese domestic wheat prices have soared above imported wheat over the past two years, as a result of the MSP and import quota system, according to domestic flour millers. The average wheat price was Yuan 2,438/mt ($366.40/mt) on October 26, according to data from the State Administration of Grain. This was sharply higher than transacted prices of $248-$249/mt CFR South Korea for US wheat this week, S&P Global Platts data showed. Typically, sowing for winter wheat — which accounts for more than 90% of total wheat production — begins in late September through November, and market sources expected acreage would not be significantly different from the previous year’s planted area. However, the market cooling measure is definitely welcomed by millers, as trade sources were earlier expecting about 80 million mt of wheat held in state reserves, as opposed to 72.06 million mt as of October 13, based on State Administration of Grain data.
China’s National Bureau of Statistics have estimated harvested wheat at 127.35 million mt for 2017. Separately, while China is not an active wheat importer, its wheat imports over January-August hit 3.14 million mt — the highest over the reported period in three years. Lower international prices weighed down by abundant global stocks in the 2016-2017 season (July-June), combined with strong domestic demand for high gluten wheat unmet by domestic supply, were the main drivers behind the strong import demand in 2017 so far, according to traders. China imposes a tightly controlled system for wheat through tariff rate quotas, or TRQs, set at 9.64 million mt for 2018, unchanged since 2016. Of this, only 10% is allocated to private buyers. If private buyers import more than their allocated volumes, a 65% import tax is imposed. State-owned grain buyers such as Sino Grain and Cofco are allocated the balance of the quota.
