Wednesday, August 16, 2017

Infant Formula Registration Shake-Out

A new registration system for milk powder products in China is aimed at paring down the bewildering number of formulas and brands that crowd retail shelves, news media say.
Milk powder products in a Chinese supermarket.

New regulations announced last October require milk powder producers to register with China's Food and Drug Administration before the regulations come into force January 1, 2018. Companies will be permitted to register no more than 9 milk powder products: up to 3 milk formula lines, each with up to 3 formula products. Companies with R&D, inspection capacity, and their own production equipment are permitted to register.

CFDA recently announced approval of 89 milk formula products submitted by the first set of 22 companies to register. Two more rounds of registration are expected before the January 1 deadline.

China Economic Times says the regulation is aimed at reducing the excessive number of brands and products. Statistics show there were 103 infant formula producers offering 2000 different formulas in the Chinese market. Some companies paste labels on cans of milk powder produced by others.

The so-called "strictest new policy" does not allow companies to market products through agents, prohibits sticking labels on products, limits raw material to cow and goat milk, requires companies to use their own production processing facilities and demands that fresh milk used in powder must come from the company's own "production base."

A Peoples Daily article earlier this year, "Are Domestic Dairy Companies Ready?" suggested that the regulation is aimed at consolidating and strengthening the domestic infant formula industry as the two-child policy allows more births which creates greater demand for the product. According to the article, domestic companies are not benefiting as expected from vigorous demand.

By weeding out weak and untrustworthy suppliers, the regulation is expected to raise the profile of remaining domestic suppliers. Peoples Daily suggests that the regulation is intended to weed out companies whose business focuses solely on marketing, leaving companies that produce quality products. According to Peoples Daily, 200-300 small and medium companies already quit the industry in 2016, largely because of the new registration requirements. They expect more exits.

The new regulations are to be applied equally to foreign and domestic suppliers. According to Southern Metropolitan News, some observers were surprised that foreign brands accounted for only 20 percent of the initial set of approved formula products. Some industry insiders think the regulations are tilted toward strengthening the position of domestic companies in an industry where foreign brands are most popular. An industry association official says that foreign companies have taken longer to register because they have less knowledge about the process and it takes them longer to assemble and notarize paperwork. Others say many companies are holding back and watching to see how the leading companies cope with the new requirements.

Southern Metropolitan News suggests that some companies were eager to be in the first batch of approved companies to gain approval from consumers. Others say the first set of companies are not necessarily the best ones and they expect any advantage from being among the first to register will fade quickly.

Thursday, August 10, 2017

China MOA S&D August 2017

There were few changes in supply and demand estimates by China's Ministry of Agriculture in August with harvests for major crops about to begin in coming months.

The 2016/17 estimate of corn imports was raised by 200,000 mt to 1 million metric tons. According to MOA, the corn auctioned from reserves has not met demands of processors, so some switched to imports. As of yesterday's auctions, 40 mmt of corn had been auctioned from China's reserves since May. However, the MOA balance sheet estimates that the supply of corn for 2016/17 will still exceed consumption by 9.7 mmt.

MOA revised its estimate of 2017/18 corn  yields downward due to pest problems in certain areas--although the yield is still historically high. Corn production for 2017/18 will fall to 210.7 mmt, and consumption will exceed supply by 3.17 mmt in the coming market year, according to the MOA estimates.

China corn supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 36,760 36,760 35,496 35,496
Harvested area 1000 ha 36,760 36,760 35,496 35,496
Yield Kg/ha 5,973 5,973 5,970 5,936
Production MMT 219.57 219.57 211.91 210.7
Imports MMT 0.8 1 1 1
Consumption MMT 210.72 210.72 214.57 214.57
--Food MMT 7.82 7.82 7.89 7.89
--Feed MMT 133.03 133.03 135.03 135.03
--Industrial use MMT 58.25 58.25 60.25 60.25
--Seed MMT 1.61 1.61 1.57 1.57
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.15 0.15 0.3 0.3
Surplus MMT 9.50 9.70 -1.96 -3.17

MOA made no changes in the soybean S&D.

China soybean supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 7,208 7,208 8,196 8,196
Harvested area 1000 ha 7,202 7,202 8,196 8,196
Yield Kg/ha 1796 1796 1797 1797
Production MMT 12.94 12.94 14.73 14.73
Imports MMT 91.55 91.55 93.16 93.16
Consumption MMT 106.16 106.16 108.63 108.63
--Crushing MMT 91.09 91.09 92.50 92.50
--Food MMT 11.18 11.18 12.04 12.04
--Seed MMT 0.64 0.64 0.64 0.64
Loss and other MMT 3.25 3.25 3.45 3.45
Exports MMT 0.13 0.13 0.22 0.22
Surplus MMT -1.81 -1.81 -0.97 -0.97

Chinese authorities have sold off 2.15 mmt of their cotton reserves as of August 4. MOA adjusted 2016/17 cotton consumption up by 100,000 to reflect the success in selling cotton into the market. Estimated cotton imports were raised to 1.05 mmt. The 2016/17 ending inventory was adjusted downward by only 40,000 mt to 9.09 mmt.

Estimated cotton output for 2017/18 was adjusted upward to 5.28 mmt on both increased area and higher yield. Imports will be only 1 mmt, and consumption will exceed supply. The ending inventory will fall further to 7.46 mmt in 2017/18.

China cotton supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Begin inventory MMT 11.11 11.11 9.13 9.09
Planted area 1000 ha 3,100 3,100 3,200 3,293
Yield Kg/ha 1,555 1,555 1,594 1,602
Production MMT 4.82 4.82 5.10 5.28
Imports MMT 1.00 1.05 1.00 1.00
Consumption MMT 7.79 7.89 7.74 7.9
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 9.13 9.09 7.49 7.46

MOA raised its estimate of 2016/17 soybean oil imports to accommodate increased demand from a growing stream of rural-urban migrants discovered by the National Bureau of Statistics in its report on economic growth for the first half of 2017. Exports of edible oils were raised due to increases in sales of specialty oil products.

China edible oils supply and demand (Min Agriculture, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Production MMT 27.06 27.06 27.21 27.28
--Soy oil MMT 15.96 15.96 16.05 16.05
--Rapeseed oil MMT 5.76 5.76 5.71 5.71
--Peanut oil MMT 3.18 3.18 3.24 3.24
Imports MMT 5.6 5.72 6.2 6.2
--Palm oil MMT 3.25 3.25 3.75 3.75
--Rapeseed oil MMT 0.75 0.75 0.85 0.85
--Soy oil MMT 0.58 0.70 0.58 0.58
Consumption MMT 31.46 31.68 31.63 31.86
--Urban MMT 21.5 22.92 21.65 23.12
--Rural MMT 9.96 8.76 9.98 8.74
Exports MMT 0.13 0.17 0.13 0.13
Surplus MMT 1.07 0.93 1.66 1.49

China sugar supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 1351 1351 1472 1472
--sugar cane 1000 ha 1183 1183 1277 1277
--sugar beets 1000 ha 168 168 195 195

--sugar cane MT/ha 60 60 60 60
--sugar beets MT/ha 52.5 52.5 52.5 52.5
Sugar output MMT 9.29 9.29 10.47 10.47
--sugar cane MMT 8.24 8.24 9.23 9.23
--sugar beets MMT 1.05 1.05 1.24 1.24
Imports MMT 3 2.6 3.2 3.2
Consumption MMT 15 15 15 15
Exports MMT 0.07 0.07 0.07 0.07
Surplus MMT -2.78 -3.18 -1.4 -1.4

Rice and Wheat Support Price Policies Up for Reform

A Chinese official signaled that a major reform or even elimination of the country's price floor policy for wheat and rice may be on the horizon, but an official media outlet assured farmers that they need not worry about a drastic policy change that will curb their rising incomes.

In remarks at a rural policy forum held in Beijing, Han Jun--head of the Central Communist Party's Rural Leadership Group--praised the grain price support policies for their role in ensuring food security and protecting farmers' incomes, but he raised concerns about unintended consequences in the current market environment where international prices are far below China's domestic support price levels. Han despaired that the government's financial burden is overwhelming as it holds massive inventories of grain and sells reserves for less than the acquisition cost. High prices in China have eroded the international competitiveness of its commodities, and the gap between Chinese and international prices has prompted a surge of imports and smuggling. Han commented that this cannot continue, and the support price program has now reached a point where it is not immune to change.
Han observed that purchases of grain for government reserves strayed from the original intent of intermittently stabilizing markets to becoming the predominant sales channel. Controlled prices and surging government purchases have decoupled supply from demand and created structural grain surpluses. Han pointed to corn as the commodity with the most pressing problems: in 2014, purchases for the government's "temporary reserve" accounted for 88 percent of corn produced in the northeastern provinces. In 2015--the corn program's final year--reserve purchases ballooned to 125 percent of corn produced in the northeastern provinces as corn from other regions was trucked in to take advantage of the government-set price. Han said 100 million metric tons of corn substitutes imported from 2014 to 2016 were partly responsible for the unintended growth in excess corn reserves. He also cited price supports for prompting smuggling of rice.

Reform of the minimum price program for rice and wheat would be the latest phase of a series of "marketized" price reforms that have been "very smooth," with "results better than expected," Han said. Price reforms began with the abandonment of support price policies for cotton and soybeans in 2014, continued with the reduction of the corn support price in 2015 and the corn price support elimination in 2016. Rapeseed support prices were abandoned in 2015 and excess rapeseed oil reserves have been disposed of, Han said.

Han did not give any details on the prospects for policy changes or when they might take place. The next clue about the program's future may be this fall when Chinese authorities customarily announce the wheat floor price for the following year in late September or early October. There was speculation about the possible end of the minimum price program ahead of last October's announcement, and looks like there will be again this year.

The day after Han's comments were reported, a commentator on the "voice of rural China" assured listeners that they need not worry about rumors about the end of grain price policies, because no changes have been announced by the government. The commentator suggested that rumors circulate because the government doesn't provide any information about their intentions. The commentator then argued for the necessity of agricultural price reforms, assured farmers the government would carefully consider the impact of policy changes on "farmer friends," and warned farmers that short-term pressure is a necessary impact of market competition.

Dr. Han did not mention his past endorsement of the policy strategy that created the problems. In a 2010 interview with Farmers Daily, Han said it was necessary to raise farm prices every year to ensure that farmers could earn a healthy net return as their production costs rose, and high farm prices could be seen as a way of "industry repaying agriculture." Back in 2010, he proclaimed that the world was in an era of permanently high prices.

Seven years ago Han said, "When China has a shortage of grain, the world cannot meet China's demand." This week Han implied that the world is supplying China with too much grain.

Wednesday, August 2, 2017

China Ag Imports Outpace Exports in H1 2017

The Ministry of Agriculture reports that China's agricultural imports surged to $61.2 billion in the first half of 2017, while agricultural exports were $34.9 billion. The value of imports was 14.5 percent ahead of the same period last year, and exports were up 3 percent. Oilseeds were the largest agricultural import category, valued at $20.8 billion in H1 2017. China also imported $2.7 billion in edible oils. Oilseed and edible oil imports were both up more than 26 percent from last year. Livestock imports were $12.4 billion, up 6.5 percent from a year ago. China has trade surpluses in aquatic products and vegetables. (The statistics do not report a number of processed foods, beverages, and live animals.)

China agricultural imports and exports, January-June 2017
Category Imports y-o-y change Exports y-o-y change

Bil. $ percent Bil. $ percent
Agricultural products 61.22 14.5 34.92 3
Cereal grains 3.29 -2.8 0.36 74.1
Cotton 1.29 56.1 --
Sugar 0.7 43.2 --
Oilseeds 20.83 26.2 0.85 16.3
Edible oils 2.72 26.8 0.1 47.8
Livestock 12.38 6.5 2.93 11.3
Aquatic products 5.1 18.7 9.83 2.1
Vegetables 0.26 6.1 7.28 7.3
Fruit 3.38 -0.3 2.71 -6.3

Grain imports were valued at $3.3 billion in H1 2017, and totaled 13.7 million metric tons. Wheat and barley imports were up sharply, but corn and sorghum imports plunged. The volume of rice imports was up 6.5 percent to 2.1 mmt.

Imports of distillers dried grains--hit with antidumping duties imposed by China--sank 77 percent from a year ago. Cassava imports fell 6.5 percent.

China imported 769,000 metric tons of cotton and 1.7 million metric tons of cotton yarn. Sugar imports were up 5.9 percent.

The volume of soybean imports was up 16.2 percent to 44.8 mmt during H1 2017. Rapeseed imports totaled 2.6 mmt, and rose 32 percent from last year. Palm oil, rapeseed oil, and soybean oil imports were up sharply, but sunflower seed oil imports dropped.

Pork imports declined as domestic pork prices fell this year to levels substantially lower than record-highs reached in 2016. Beef, lamb, and milk powder imports were up in H1 2017.

China imports of agricultural products, January-June 2017
Item Imports y-o-y change
1,000 tonnes percent
Cereal grains 13,157 1
Wheat 2,653 48.2
Corn 736 -74.7
Rice 2,136 6.5
Barley 4,521 110
Sorghum 2,990 -26.1
Distillers grains 342 -77.8
Cassava 4,267 -6.5
Cotton 769 24
Cotton yarn 1,732 9.4
Sugar 1,414 5.9
Soybeans 44,808 16.2
Rapeseed 2,635 32.1
Palm oil 2,181 16.9
Rapeseed oil 479 21.3
Sunflower oil 352 -25.1
Soybean oil 361 92.5
Pork 662 -13.1
Pork offal 626 -8.0
Beef 327 10.6
Lamb 146 4.6
Milk powder 563 9.9

Monday, July 31, 2017

Good News Only Until the 19th Party Congress. That's an Order!

A meeting exhorting agricultural cadres to toe the line and "sing the main theme" last week shows that Communist Party Secretary Xi Jinping is taking no chances ahead of the 19th Party Congress where he is expected to consolidate his power as China's maximum leader.

A July 28 communist organization theory meeting was held by Minister of Agriculture and Party Secretary Han Changfu to "study the spirit of Xi Jinping's important speech facing the Communist Party's 19th Congress." Ministry of Agriculture party leaders were warned of the great importance of a "victorious" 19th Party Congress, and urged to implement all decisions of the central leadership with full strength, keeping the agricultural and rural situation good as the Congress approaches.

Communist party cadres were ordered to highlight the "great achievements" and "historic reforms" made in agricultural development and rural income growth under the "core leadership" of Comrade Xi Jinping since the 18th Communist Party Congress to ensure a successful 19th Congress this fall. Communist party officials were exhorted to strictly exercise "news discipline" and political consciousness, "singing the main theme" and "carrying forward energy" to publicize the great achievements and positive environment for agriculture and rural development.

What are the "great achievements" and reforms?

Cadres were told to emphasize the great improvements in communist party "work style," advancement of "clean government," and anticorruption work under Xi's leadership. Workers must "strengthen inspections" and "eliminate hidden dangers" to preserve rural harmony and stability.

Each agricultural office and unit must circle tightly around agricultural supply side structural reform as the main line, place "green" agricultural  development in a more prominent position, tackle difficulties, blaze new trails, highlight agricultural science and technology innovation, and promote precise industry-driven poverty alleviation. Agricultural leaders must actively work for abundant agricultural harvests and income growth. During the typhoon season they must work hard on disaster prevention and mitigation.

Don't expect any bad news from China over the next few months.

Saturday, July 29, 2017

China Imported Food Safety Regulation Strengthened

Chinese consumers often buy imported food because they have more confidence in its quality and safety, yet China's regulators are raising more hurdles to food imports in the guise of food safety.

A White Paper on the Safety and Quality of Imported Food During 2016 released by China's inspection and quarantine administration (known as AQSIQ) reports on the country's growing and diversifying imports of food, summarizes problems found in rejected shipments, and outlines the agency's initiatives to certify exporters in other countries, track shipments from their source to their final destination in China, keep tabs on both importers and exporters, and shame bad actors.

According to the White Paper, China became the world's largest market for imported food and agricultural products in 2011. The value of imports has stabilized at US$46-$48 billion between 2013 and 2016, but the number of shipments arriving rose from 965,000 to 1.32 million during those years. (Note: the AQSIQ white paper does not appear to include bulk commodities like grains or oilseeds. China's soybean imports alone were valued at $34 billion last year.)

AQSIQ reports that the source and type of food imports is diversifying, yet a few regions still account for most of the imports. While China imported food from 187 countries in 2016, 10 countries accounted for 81.6%. The European Union was by far the largest source, accounting for US$ 11.1 billion of China's food imports and 43 percent of shipments. Southeast Asia was the second-leading source of imports ($7.4 billion and 12.5%), and United States was third ($5.1 billion and 8.6% of shipments. Most of these imports arrive in China at a handful of coastal provinces.

Meats are the largest and fastest-growing food import category. Meat imports totaled 4.6 million metric tons last year and were up 63%. Overall dairy imports peaked in 2014, but imports of infant formula continue to grow rapidly--up 25.6% last year. For some commodities, imports account for a large proportion of domestic supplies. Dairy imports accounted for 17% of the domestic dairy product supply last year, the import share of supply was 29% for edible oils, and 5.5% for aquatic products, according to the paper.

To ensure the safety of the growing stream of food imports, AQSIQ explains that it has set up a system that emphasizes control over the entire supply chain for imported foods: before, during, and after import. This includes approvals of manufacturers in foreign countries to ensure they comply with China's regulations and standards, inspections and testing at points of entry, and tracking products after they enter China.

Implementation of the import food safety system involves extensive testing and inspections at the border plus onerous approvals for exporters. This means there are many hurdles to clear in order to export to China. A country must have its food safety system reviewed by AQSIQ, foreign manufacturers must be certified and registered, and governmental authorities in exporting countries must inspect shipments and issue certificates verifying that shipments comply with China's food safety standards. Last year AQSIQ reviewed food safety management systems in 40 countries, and 16,033 enterprises in 89 countries were registered as exporters. AQSIQ also has authority to inspect and quarantine 291 kinds of imported animal- and plant-based foods to prevent diseases and pests from entering China.

AQSIQ also intends to compile mountains of information about exporters, importers, and every stop imported food shipments make between foreign farms and Chinese consumers. China has a record system to keep tabs on 126,998 foreign food exporters and 30,625 importers in a publicly available "record system for importers and exporters of imported food and cosmetic products." There is also a food recall system for imports and an "importer discussion system" to talk about problems that arise.

AQSIQ posts lists of rejected food shipments and lists of bad actors among foreign producers, foreign exporters, and domestic importers on an AQSIQ web page. As of today (July 29, 2017), the latest rejections for May had been posted July 5, and black lists had been updated June 12. All lists are in Chinese. The importer black list included 217 companies cited for violations from 2014 to this year. The May rejections listed 451 food shipments (some multiple instances of the same item) and 35 cosmetics shipments.
The white paper reports that China's inspection and quarantine authorities rejected 3,042 imported food shipments during 2016. Imports can be rejected for labeling problems (products must be labeled in Chinese with place of production and contact information for importing company), incomplete documentation, detection of dozens of additives and contaminants, presence of microorganisms and bacteria, and being past the sell-by date.

The number of rejected shipments in 2016 was relatively steady over the last five years--the largest number of rejections was 3,503 in 2014 and the lowest was 2,164 in 2013. These rejections constitute a tiny proportion of food imported. The 3042 rejected shipments equaled just 0.23 percent of the 1.3 million total number of food shipments reported by AQSIQ for 2016. Calculations show the same percentage was rejected in 2015 and it was essentially the same (0.22 percent) in 2013. The highest percentage was 0.34% in 2014, still tiny.

China food import rejections
Year All food import shipments Rejected shipments Percent rejected
2012 834,000 2499 0.30
2013 965,000 2164 0.22
2014 1,042,000 3503 0.34
2015 1,199,000 2805 0.23
2016 1,324,000 3042 0.23

Beverages (596 rejections) were the most commonly rejected food item, followed by cakes and cookies (578). These categories also had the highest percentages of shipments rejected: 0.53% for beverages and 0.41% for cakes and cookies. The percentage of shipments rejected was under 0.1% for meat, seafood, and wine and spirits.

Estimated China food import rejections, by type of food, 2016
Type of food Rejections Share of shipments rejected

Number Percent
Meat 134 0.05
Seafood 94 0.09
Dairy 155 0.24
Grain/milling products 271 0.30
Wine and spirits 213 0.09
Sugar and confections 246 0.30
Beverages 596 0.53
Nuts and fruits 128 0.16
Cakes and cookies 578 0.41
Other food 627 0.31

A large number of food shipments China rejects come from countries known for having higher food safety standards than China, including the European Union (678), United States (198), Japan (183), and Australia (94). In fact, the large numbers may reflect the propensity for Chinese consumers to import from those countries because the products are safer than those in China. Another large group of rejections are for foods from nearby countries. Shipments from Taiwan accounted for the largest number of rejections (721). It's unclear why Taiwan had so many rejections--they included a variety of products and reasons. Other top sources were Southeast Asia (399 rejections) and South Korea (161), and Russia (91). The rate of rejection was below the average for the EU (0.16% of shipments), Australia (0.11%), South Korea (.13%) and Brazil (0.17%), while the U.S. rejection rate of 0.23% was equal to the overall average. Russia (0.54%) and Southeast Asia (0.32%) rejection rates were above the average but still very low. Rejection rates could not be calculated for Taiwan and Japan because AQSIQ did not report their total food shipments.

Estimated China food import rejections, by country-supplier, 2016
Country/region Rejections Share of shipments rejected (%)
Taiwan 721 NA
EU 678 0.16
Southeast Asia 399 0.32
U.S. 198 0.23
Japan 183 NA
South Korea 161 0.13
Australia 94 0.11
Russia  91 0.54
Brazil 64 0.17
Turkey 40 NA
Other countries 414 NA

Chinese regulations will now influence how food is regulated in exporting countries. Exporters must conform to China's requirements if they want to sell to China--and the incentive to adopt China's requirements are strong since China is a large export market. Countries more reliant on selling to China will be more inclined to shift their regulatory system to harmonize with China's.

Moreover, China intends to actively participate in international bodies that set food regulatory standards and practices. The White Paper says China is gaining a voice in the formation of international rules for food safety by participating in multilateral bodies that set such rules. China signed bilateral food safety agreements with 24 countries during 2016. AQSIQ anticipates that China's "going out" program of encouraging Chinese companies to invest overseas to supply food to China will resolve safety problems for food imports.

In much the same way that China is building out its physical infrastructure of roads and airports from scratch, it is also building a food safety system from scratch using blueprints supplied by foreign experts. Thus, a country known for abysmal food safety problems now has--on paper--some of the highest standards and a logically designed system. China's regulatory approach may clash with those of some counterparts who have developed their own approaches to ensuring food safety through many years of practical experience. The systems China is installing look great on paper, but frequent flyer miles for Chinese inspectors, scanners, microscopes, and mountains of data cannot protect food without the human elements of expertise, experience, logic, and integrity.

Sunday, July 23, 2017

China Wheat Supplies Plentiful

China has plentiful supplies of wheat after a good harvest this summer with minimal pest and disease damage, and authorities are adding to wheat reserves in order to prop up prices. Wheat imports are expected to decline during the 2017/18 market year as importers buy mainly to fill deficits of certain varieties still not produced in adequate volumes in China.

China's National Bureau of Statistics estimated the 2017 winter wheat output (harvested during the summer) at 127.35 million metric tons, up 1.07 mmt (0.84%) from last year. The National Grain and Oils Information Center estimates total wheat output at 129.85 mmt for 2017/18, also up 1 mmt from last year. NGOIC estimates wheat consumption at 103.7 mmt, down 4 mmt from last year.

Reports from provinces indicate that this year's incidence of wheat scab and pest damage is down sharply. There have been few problems with lodging, mold and sprouting that were widespread during the last several years when heavy rain storms occurred at wheat harvest time.

Chinese authorities are buying up wheat to resist downward pressure on prices due to plentiful supplies. Shandong Province launched its minimum price procurement program in three prefectures on July 6. Hebei Province launched its program in all its major wheat-producing areas the same day. Jiangsu, Anhui, Henan, and Hubei Provinces had already started their minimum price purchase programs in June. Procurement at minimum prices will continue through September 30.

The Agricultural Development Bank has allocated 135 billion yuan ($19.6 billion) to finance summer grain procurement (wheat, early rice, and rapeseed), 20 billion yuan more than last year. As of June, purchases financed by the government's Agricultural Development Bank constituted 54% of all wheat purchases.

Wheat procurement is finishing its peak period. As of July 15, 2017 the Grain Bureau reported that 46.7 mmt of wheat had been procured so far, 12.1 mmt more than the same period last year.

Average procurement prices for wheat reported by the Grain Bureau covered a wide range, from 2100 to 2710 yuan/metric ton ($8.28-$10.69 per bushel). The lowest prices reported in each province are under the minimum of 2360 yuan/mt ($9.30 per bushel).

As of early July, the Chinese government's temporary reserve of wheat was reported to be 56-to-57 mmt. That is 17-to-18 mmt higher than last year at the same time.

The rally in international wheat prices last month due to drought concerns in the U.S. narrowed the gap between Chinese and global wheat prices. The estimated C&F price of US Soft Red Wheat arriving in China is 2120 yuan/mt, up 303 yuan from last month. That price is still 460 yuan less than the price of domestic Chinese wheat, but the gap narrowed from 767 yuan/mt last month.

NGOIC lowered its estimate of China's 2017/18 wheat imports to 3 mmt this month, down 300,000 metric tons from last month's estimate. NGOIC's estimate is 1.25 mmt less than 2016/17 imports.