February 13, 2009

The continuing drought in China may cut winter wheat output by about 5 percent this year, and could send wheat prices higher later on, a local agricultural consultancy firm said Thursday (February 12).

Winter wheat production may fall to 100.1 million metric tonnes in the 2009 harvest, slipping 5.6 million tonnes from last year, Dejun Huang, the president of Beijing Orient Agribusiness Consultant Co., said in a note.

But the market's supply and demand balance is unlikely to be affected much, and heavy imports won't be needed, as the year-end wheat inventory was estimated at 52 million tonnes, the consultant said.

In drought-affected areas, yield is expected to drop 11.5 percent, Huang said.

Vice Agriculture Minister Wei Chaoan said earlier Thursday that as of the previous day, the drought was still affecting 40 percent of the winter wheat crop, and future overall rainfall was also likely to be limited.

Huang said wheat prices could rise as the government may raise its minimum wheat purchase prices by 10 to 15 percent while cash subsidies for drought relief might also increase as an additional measure to help farmers deal with rising input costs.

Late last year, Chinese government hiked its minimum wheat purchase prices for 2009 by 13 percent to 15.3 percent to RMB1,660 to RMB1,740/tonne (US$243-US$255/tonne).

However, Wei said China has seen bumper grain harvests for the past five years, so the government has sufficient wheat reserves to prevent a steep rise in prices.