Wheat: A long-term strong pattern emerges

On December 29, 2021, before the New Year's Day holiday, the National Grain Trading Center announced that it would launch a bidding sales transaction of 500,000 tons of wheat with a minimum purchase price on January 5, 2022. Among them, 43,000 tons of wheat in Anhui Province are mild and unsuitable for storage, and the reserve price of the third-class auction is 2,000 yuan / ton, and the grade difference is 40 yuan / ton. 282,000 tons in Henan Province, 148,000 tons in Hebei Province, 26,000 tons in Jiangsu Province, and 0.2 million tons in Hubei Province are suitable for storage wheat. The reserve price of the auction is still 2350 yuan / ton, and the grade difference is 40 yuan / ton.

Judging from the overall market reaction after the release of the transaction announcement, the wheat market price did not fluctuate as much as when the rumors flew all over the sky before, and it was basically calm and calm. The reason is that the author thinks that for the practitioners of the wheat market, there are enough expectations for this auction, and the author has repeatedly emphasized in the previous tweet that from the inventory size and irregular release of wheat at the minimum purchase price, the wheat auction is no longer the mainstream factor affecting the market price of wheat. So how much impact will this auction have on wheat market prices? Will there be a trend shift in the wheat market? Let's explore!

How much impact will the January 5 wheat auction have on the current market?

What is certain is that although the market performance is calm, this auction has a certain short-term impact on the wheat market price. The transaction announcement has increased the restrictions on the eligibility to participate in the auction, that is, it is limited to the participation of flour processing enterprises in the auction, and there are certain restrictions on the quantity and use, which means that the threshold for participating in the auction has been raised in disguise.

Then the lack of feed companies and traders, two important market players, the intensity of their bidding and the premium range may be greatly reduced, after all, flour companies in the context of overcapacity, life has not been very good, in the wheat auction market has been relatively rational. Moreover, at present, it is in the special rectification activities of grain-related enterprises, and the auction and exit from the warehouse will be more compliant and legal.

In view of the fact that the auction reserve price of the wheat auction sale is lower than the current market price, the emergence of a premium is certain, but because of the restrictions on the trading qualifications of the auction subject, the premium range will be relatively rational, then the transaction price plus the factory price after the cost of leaving the warehouse may constitute a certain degree of impact on the current market price of wheat.

Admittedly, I think this shock is relatively limited and short-term. Because not only is the number of auctions limited, but the background of this wheat auction should be to ensure that the market supply is sufficient during the double festival, so the wheat auction does not necessarily have continuity. Judging from the lessons of corn, under the premise that the new wheat production in 22 years cannot be determined, the release of policy-based stocks of wheat should still be moderated, and the management will also take the initiative to control the release rhythm of policy-oriented wheat.

Second, what are the most important influencing factors in the wheat market?

From the above questions, we can deduce that what really affects the wheat market must be the production of new wheat in 22 years. For the rise and fall of commodities, the main factors are also in the current supply and demand relationship and the expected supply and demand relationship. The current supply and demand relationship is mainly reflected by the current market price rise and fall, in today's information age, this opportunity is generally short-lived, and it is difficult to grasp.

The expected supply and demand relationship is a trend opportunity, not only has enough time to prepare, but also the business entities in the industry have many differences, generally speaking, there are relatively large opportunities. Although the sowing and yield of winter wheat in the Huanghuai region are good at present, and there is not much difference from the perennial, but affected by the autumn weather factors of 21 years, the sowing situation and production conditions of the main winter wheat producing areas of Hebei, Shandong and Henan are not ideal at present, and under the premise of the decline in the sown area, unless there are excellent weather factors in the later period, the decline in the production capacity of winter wheat in 22 years is also a high probability.

The author believes that this judgment of the expected supply and demand relationship is the biggest factor affecting the future trend of wheat, just like the price trend of the corn market in 20 years. That is to say, in the case of abundant wheat in the winter of 22 years, it is expected that the supply and demand relationship will still be tight, and the trend of wheat market prices will be based on a strong tone.

Third, the emergence of a phased low in wheat is still an opportunity

Although we can be sure that the medium- and long-term trend of wheat is still based on a strong tone, it does not rule out that the impact of the news will cause panic and short-term supply amplification and cause market prices to produce stage lows. So does the stage low generated by each decline in this process still constitute a stage opportunity? In fact, since the new season wheat was listed in 21 years, it has been verified many times and given a clear answer! So when will this phased opportunity occur?

In view of the small private inventory of wheat, even if the market price is affected by the auction before the Spring Festival, the range will be limited, so the author thinks that this may constitute a relatively small opportunity.

According to the new version of the local reserve grain management measures issued by many provinces, most provinces have made it clear that the shelf period of local reserve grain is 4 months, and the concentrated listing period of new season wheat is early to mid-June, which means that simply in terms of the overhead period, the rotation period of local reserve grain wheat (including central reserve grain wheat) can start from early February, taking into account the traditional festival factor of the Spring Festival, combined with the high price of wheat market, then late February and March of 22 years, It is possible to become a centralized rotation period for local grain reserves of wheat (including central reserve grain wheat).

Although the number of wheat in this part is also limited, but as far as the production and marketing area is concerned, the distribution is more reasonable, which may have a phased impact on the area with a relatively large amount of wheat stock, and may produce a phased price low point to create market opportunities, of course, this opportunity is also a double-edged sword, which is based on the expectation that the wheat production in the new season in 22 years is not ideal, so as far as the main body of wheat business is concerned, there are requirements for storage capacity and capital capacity.

Fourth, high-quality wheat is still the top product of feed substitution

Before the 21 years of the northeast corn harvest led to the corn market price has fallen expectations, which may lead to the wheat feed demand weakening, at present, although the expectation of corn market price decline has become a reality, but after the snowfall in the northeast corn quality has changed to a certain extent, that is, vomitoxin appeared a certain area of excess phenomenon (sampling results of a large feed group), part of the vomitoxin safe corn will become a policy corn reserve of fragrant food, will inevitably raise the market price of this part of the corn. From a cost-effective point of view, this will make the current high-quality wheat, that is, wheat with high vomitoxin safety value, still be the top product of feed substitution, thus increasing the demand for high-quality wheat in feed enterprises to continue to extend.

Fifth, the policy in the face of the long-term strength of wheat gives a signal

The spirit of the recent Central Rural Conference clarified the spirit of the policy of expanding the area planted with soybeans and oil crops, and the increase in cultivated land area cannot be achieved overnight. For sure, for the north, the increase in soybean acreage may affect the area planted with corn and japonica rice. In the southern water network area, the increase in the planting area of rapeseed may also affect the planting area of wheat, combined with the linkage effect of corn and wheat, can it be considered that the policy in the face of the long-term strength of wheat also gives a signal! So if wheat has a stage low, why not a good opportunity to intervene!

(Author: Shuangfeng Grain Reserve Bank, Ningxia, Anhui Province)