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China Cuts Minimum Purchase Price for Wheat for First Time in Over a Decade

By Dominique Patton

BEIJING, Oct 27 (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.

The government has cut the 2018 price to 2,300 yuan ($346) per tonne, down 2.5% from this year, the National Development and Reform Commission said on its website on Friday.

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. But 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 programmes 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 inventory.

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.

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 towards 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 cut is not expected to immediately impact the market, with a lower price widely anticipated, said Fan Jingya, analyst at Cofco Futures.

She added that most winter wheat has already been planted so a lower price will not affect planting decisions until next year. China produced 127.35 million tonnes of wheat this year, up almost 1% on 2016.

The ex-warehouse price for wheat in top wheat province Henan <W-EXWHGS-GEN> is currently at 2,520 yuan per tonne, more than double the most active wheat contract on the Chicago Board of Trade.

($1 = 6.6555 Chinese yuan)

(Reporting by Dominique Patton; Editing by Jacqueline Wong and Joseph Radford)

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