A two-day auction for 2.5 million tons of state wheat reserves opened on Wednesday at the Henan Provincial Grain Trade Market, which is conducting the largest such auction in China.

Auction volumes have risen sharply this year, compared with just a few months ago. In late 2007, auctions were no more than a few hundred thousand tons, but two auctions in January offered 2 million tons each time. There are usually two auctions per month.

The auctions are meant to stabilize market prices and prevent private enterprises from holding grain stocks off the market in hopes of profit.

"The auction was entrusted to us by the China Grain Reserve Corporation. It is the largest sale of wheat reserves since China imposed a minimum grain purchase price to rein the grain market in 2006," said Huang Shang, deputy manager of the market. The auction ends on Thursday.

Minimum grain prices were introduced to encourage grain production.

"Buyers have responded to the auction enthusiastically. The market received 2,700 bids on Wednesday morning," said Huang. Bidders are from flour producers and baking concerns.

China's National Development and Reform Commission announced on February 8 that the minimum purchase price for wheat and rice in 2008 will be raised slightly. The price will be 70 yuan (about US$9.8) to 75 yuan per 50 kilograms, up 1.4 percent to 4 percent, on average, from 2007.

"Wheat and flour plants have been prepared for the anticipated price surge this year. The rising margin is still under control," said Huang Kai, a local wheat buyer.

He said he believed that larger grain reserve sales would be effective in preventing hoarding and stabilizing the market price.

Of the wheat being auctioned, 1.5 million tons were harvested in 2006 and 1 million tons were harvested in 2007.

According to figures from the State Administration of Grains, China produced 501.5 million tons of grain in 2007, the fourth consecutive year of increase despite months of severe drought. The country ended the year with a relatively high level of grain reserves.

"China has been substantially enlarging the selling of wheat reserves since November last year, when reserves sold at a single auction rose to 300,000 tons from 100,000 tons before October. The strong selling momentum will continue this year," said Huang.

He said that the snowstorms that hit southern China in mid-January had taken a limited toll on winter wheat crops in the north. More than 40 percent of the wheat reserves come from northern Henan Province.

(Xinhua News Agency February 21, 2008)