Early wheat harvest results supportive for imports

The wheat market in China is waiting for the arrival of new crop winter wheat. Many flour mills are estimated to only have half a month’s supply on hand. Prices are elevated and most mills are hoping for cheaper prices once the new crop arrives.

National auctions of government wheat reserves are currently suspended ahead of the harvest. There are some small regional auctions still happening, but the enthusiasm to participate is small.

Shandong auctioned off 57,000 tons of 2017 to 2020 wheat crops recently but the participation rate was only 32%.

There is some early wheat harvesting happening in Hubei province in central China, but the quality is relatively poor and can only be used for animal feed.

Prices for the crop are currently around 2,700-2,750 yuan/kg ($403-410/ton).

Wheat imports are likely to increase this year due to issues with China’s domestic crop, but there is also a long-term support for wheat imports due to changing diets in China.

According to research firm Bailian Intelligence, the opening rate of bakeries in China was 121% in 2021, indicating that for every bakery which closed, 1.2 opened. Compared to the rest of the industry, bakeries were the only segment that saw more stores open than close last year.

This was even higher in first tier cities where the opening rate reached 161%.

Confectionary and baked goods are rising in popularity among young consumers, and the flour mixes typically require imported wheat or flour to achieve the correct blend.

While bakeries have decent market penetration in richer first tier cities like Beijing, Shanghai, and Guangzhou, the market is less developed in inland areas or second and third tier cities. Items that are popular among young affluent consumers in first tier cities typically see wider adoption across the country.

In the near term, the market will be focused on the quality and yield of the new crop harvest. It’s difficult to assess the crop given Covid travel restrictions. Henan, China’s largest wheat-producing province, has relatively tight testing and quarantine restrictions for visitors going to the province.

Given the planting delays and fertilizer issues, it’s likely that output will drop compared to last year.

Any shortfalls in production will be bullish for imports. And given the dietary shifts among younger consumers, this should provide longer term support for imports.