China's wheat output set to drop sharply in wake of bad weather

[BEIJING] China's wheat output could drop as much as 20 per cent this crop year after bad weather hit fields in major growing areas, likely boosting imports by the world's top producer and consumer of the grain, traders and an analyst said.

Increased Chinese demand for wheat cargoes could pile more upward pressure on international prices for the commodity, which have already soared nearly 15 per cent since early April on worries over tight global supplies.

The festering trade spat between Washington and Beijing means that US exporters would probably be unable to capitalise on increased Chinese demand for wheat, traders said, leaving other major growers such as Canada and Russia set to take advantage.

"Domestic wheat output will drop significantly from last year," said Wang Wenfeng, an analyst with Zhuochuang, a consultancy in the eastern province of Shandong.

She said that came after drought hit crops in parts of the key producing provinces of Shandong and Hebei during the growing stage, while heavy rains damaged crops during harvest in May and June in Henan and Anhui provinces.

"Wheat prices have jumped very fast since the new harvest hit the market, which will probably push up imports of quality wheat this year," Ms Wang said.

Wheat prices in Shandong have climbed 5 per cent in the past two weeks to around 2,390 yuan (S$502.30) per tonne.

The China National Grain and Oils Information Centre, a government think tank, earlier this month estimated that China's wheat output would drop 3 million tonnes in the 2018/19 season from the year before to 126.73 million tonnes.

But two traders said that forecast may need to be updated, adding that the market widely expected production to drop from 15 to 20 per cent.

LOOKING ABROAD

Given the trade tensions with the United States and reduced supply from Australia following drought there, the Black Sea region and Canada remain the most viable sources for imports.

"American wheat supplies have dropped due to the trade conflict, and Australian wheat is too expensive. The only options left now are Canadian, Russian, and Kazakh wheat," said a trader in Beijing. He declined to be identified as he was not authorised to speak with media.

The traders said Chinese importers had not yet been spooked by concerns following last week's announcement of the discovery of an unapproved strain of genetically modified wheat growing in Alberta, Canada last summer.

Japan and South Korea have suspended the sale of wheat from Canada in the wake of the news.

Meanwhile, some Chinese farmers are deferring sales of wheat in expectation of higher prices, further crimping local supply.

"I'm waiting for the price to go up to 1.3 yuan per jin (2,600 yuan per tonne) and if it stays at that level for some time, then I will sell," said Li Guoyong, a wheat farmer in Hebei province who finished harvesting earlier this month.

Wheat prices in Hebei's Shijiazhuang were quoted at 2,360 yuan per tonne as of Thursday.

REUTERS