With China crop in trouble, wheat surges upward

by Josh Sosland
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ROME — Wheat futures prices have climbed to near 30-month highs in recent weeks over concerns about crop issues in Australia and Canada, as well as the 2011 hard winter crop in the United States. Now, a special alert from the Food and Agriculture Organization of the United Nations warns the 2011 winter wheat crop in China may be in trouble. Wheat futures prices were sharply higher this week, climbing above $10 a bu for most Kansas City and Minneapolis contracts as of midweek.

“Substantially below-normal rainfall since October 2010 in the North China Plain, the country’s main winter wheat-producing area, puts at risk the winter wheat crop to be harvested later in the month of June,” the F.A.O. said. “Low precipitation resulting in diminished snow cover has reduced the protection of dormant wheat plants against frost kill temperatures (usually below -18°C (0F)) during winter months from December to February. Low precipitation and thin snow cover have also jeopardized the soil moisture availability for the post-dormant growing period. Thus, the ongoing drought is potentially a serious problem.”

The F.A.O. said the main provinces affected by the weather were Shandong, Jiangsu, Henan, Hebei and Shanxi, accounting for two-thirds of the country’s wheat production.

The F.A.O. alert certainly provided a jolt to an already hypersensitive wheat futures market. If China were to become a significant wheat importer once again, wheat prices likely would spike. At the same time, China will enter the 2011-12 crop year with carryover stocks forecast by the U.S. Department of Agriculture to be around 60 million tonnes, equating to around six months’ domestic usage, before a single tonne is harvested from the 2011 crop, pointed out Paul Meyers, vice-president, commodity analysis, Connell Purchasing Services, Berkeley Heights, N.J. It likely would take a significant, even dramatic shortfall in production for China to turn to international markets for wheat in any big way, making the current situation worth watching but in itself not yet a major market mover.

China’s wheat production in 2009 was 112.5 million tonnes (4.1 billion bus), nearly double U.S. production of 68 million tonnes (2.5 billion bus). India is the second-largest producer, at 78.6 million tonnes (2.9 billion bus). Russia produces 64 million tonnes but the entire former Soviet Union produced 115 million tonnes in 2009. The European Union produced 151 million tonnes.

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