Wheat auction sees 100% sold as market weakens
This week’s auction of national reserve wheat again saw 100% of the volume sold. Henan accounted for the majority of the volume, with 87k tons at an average price of 2931 yuan per ton. This is up slightly compared to last week’s average price of 2927 yuan per ton and is against the recent trend of lower wheat prices in the cash market.
Market sentiment remains bearish due to weaker demand. Average prices have fallen around 40-60 yuan per ton since January.
Downstream demand remains weak, with many small and medium-sized flour millers running at around 30-40% of capacity. This is an unusual situation as schools and offices are reopened and food demand should be higher. Other indicators, such as metro ridership and traffic congestion, have shown a strong recovery following the holiday and indicate that people are back to work and school.
One possible explanation for this weaker demand could be that consumers are still working through larger than usual household stocks that were built up during the zero Covid policy.
Repeated and unexpected lockdowns led many consumers to stockpile basic foodstuffs for security. Although the country is open again, many consumers may still be working through these household stocks which is delaying a consumption rebound.
The next round of national auctions is scheduled for March 1st with the same volumes being offered.
Futures snap back due to firmer US dollar
Futures for agricultural products in China rebounded across the board on Friday after a risk-off session on Thursday.
The dollar strengthened sharply against the Chinese renminbi on Friday with the spot exchange rate of USD/CNY hitting the highest point in two months, raising the cost of imports for Chinese buyers.
The onshore spot rate jumped to 6.94 yuan per dollar for the first time since late December last year, up from 6.74 yuan per dollar at the beginning of the month.