China cuts wheat price to reduce production

BEIJING, China (Reuters) — China, the world’s top wheat producer, has cut its minimum purchase price for the grain for 2018 to help whittle its mammoth stockpiles and adjust to the market, the first such move since the policy was launched over a decade ago.

Winter wheat is already seeded, so the impact of the move won’t be felt until next year.

The government has cut the 2018 price to US$346 per tonne, down 2.5 percent from this year, the National Development and Reform Commission said on its website Oct. 27.

The new price takes into account “grain production costs, market supply and demand, domestic and foreign market prices and industry development,” the state planner said.

The government buys wheat from farmers at the minimum price when the market price drops below that level.

However, the policy has led to growing state stocks of the grain, even as China continues to import some types of wheat.

The government has abandoned similar programs for cotton and corn in recent years in a bid to align output better with global prices and demand. State wheat stockpiles account for about half the world’s in-ventory.

Shanghai JC Intelligence Co. Ltd. estimates there are 74 million tonnes of wheat in state reserves. That compares to the nation’s annual consumption of about 100 million tonnes.

The U.S. Department of Agriculture’s estimate for China’s stocks is 127 million tonnes, against a consumption estimate of 116 million tonnes.

China produced slightly more than 127 million tonnes of wheat this year, up almost one percent on 2016.

As early as February, a key policy document had warned that the minimum purchase price for wheat needed to be “appropriately adjusted.”

Since then, officials have reiterated the need to adjust the price.

The move is a step toward bringing domestic prices more inline with the international market and could ease some of the tensions with the United States over Beijing’s subsidies, which Washington says break international trade rules.

The U.S. has launched a challenge to China’s price supports for wheat, corn and rice at the World Trade Organization.

China says its agricultural support policies are consistent with WTO regulations and international practice.

The ex-warehouse price for wheat in top wheat province Henan is currently at $379, more than double the most active wheat contract on the Chicago Board of Trade.

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