Wheat is substitutable with corns when used as forages. For example, the price ratio of wheat and corns was 0.89 in 2011, decreasing by about 12% over 2010 and becoming the lowest ratio since 1999; the consumption of wheat forages was significantly promoted in 2011, reaching over 10 million tons. The price ratio keeps increasing since 2012 and has maintained above 1.
From January to May of 2015, due to the good weather in global major planting regions such as the US, Russia and Australia, international wheat prices constantly slipped. In August wheat prices dropped faster as a result of the precipitous decline in global financial market. In October wheat prices rebounded owing to the dry weather in planting regions of Europe and Russia. After that, prices were back in slight decline. In December, Chicago wheat spot price stood at 176 USD/ton, down by 21% year on year while American hard wheat spot price was 194 USD/ton, decreasing by 19% year on year. With the rise of price ratio of wheat and corn, consumption of wheat as forage will witness an obvious decline.
As Chinese population continues to grow and consumption improves further, overall demand for grain will constantly increase. However, with the improved urbanization level and low profits of grain planting, the labor force that engage in agricultural activities keeps decreasing and the output volume of grains can hardly increase significantly. To encourage the development of grain planting industry, Chinese government has issued a series of polices, including “procurement at protective prices” which means the government implement minimum purchasing price in major wheat planting regions and rice planting regions. According to Chinese government, the minimum purchase price of wheat (Grade 3) in 2016 is the same as that in 2015, at 2,360 CNY/ton.