July 18, 2013

 

 

Due to frost in the growing period and rain during harvest, China's wheat crop has suffered more severely than previously thought, and as much as 20 million tonnes of wheat crop in China's northern grain belt, or 16%, may be downgraded to animal feed use instead of for human consumption.

 

"We expect between 15 to 20 million tonnes of wheat will be downgraded to use for animal feed, which will reduce wheat supply for milling purpose," said Li Qiang, chief analyst at agricultural consultancy, the Shanghai JC Intelligence.

 

Higher imports, which have already been revised upwards on initial damage reports, will further shrink global supplies and support prices, fuelling new worries over global food security.

 

Wheat imports by China, which accounts for a fifth of the world's production and consumption, is expected to underpin global prices as adverse weather has left 16% of the nation's crop, unfit for human consumption. China's import demand to compensate for the damage could see the country eclipse Egypt as the world's top buyer.

 

The USDA on Thursday (Jul 11) raised its forecast for China's imports in 2013-14 to 8.5 million tonnes from 3.2 million tonnes in the previous year, prompting US wheat prices to rally to more than two-week highs. But overseas traders and analysts estimate imports could rise above 10 million tonnes, surpassing the nine million tonnes the world's biggest buyer Egypt is expected to buy.

 

Competition from China for more imports would force other buyers, such as Egypt, to pay more for grains, in a new blow for the Middle East country after two years of political turmoil has left it struggling for funds to pay for food imports.

 

In China's top wheat producing province of Henan, frost early this year followed by more damage with grains germinating due to the rainstorms in May shrank kernels. Henan is in the northern grain belt, which accounts for about half of China's output.

 

China has already booked around three million tonnes of wheat for shipment in the year to June 2014, nearing last year's purchases. That would be the biggest volume imported since the near 10 million tonnes China booked in 2003-04 after a sharp decrease in the domestic harvest. In a normal year, China accounts for about a fifth of global wheat production and consumption.

 

The crop damage across large swathes of China's farmland is adding to concerns over global food supplies after unfavourable weather in top wheat exporters the US and the Black Sea region resulted in quality downgrades.

 

Global output is expected to rise this year from last, but will still be below demand and leave the world with the lowest wheat stocks since 2008-09. Chinese analysts and traders see less of a shortfall than those overseas, and have smaller estimates for total wheat imports of around five million to six million tonnes.

 

This is because they expect limited availability of US soft red winter wheat at a price at which China is interested in buying. China is also likely to draw down its stocks to meet some of the demand.

 

The weather impact on China's wheat crop will make it harder for Beijing to maintain self-sufficiency in grains. As cities encroaching on arable land and rising incomes drive up demand, China is finding it harder and harder to feed the world's most populous nation with domestic supply.

 

At Xuchang city, trucks piled high with bags of wheat queued outside the state grain reserve warehouse. Several farmers looking to sell their wheat waited outside the building even though officials had rejected the stocks. The wheat crop, hit by frost and rains in China, cannot be milled into flour and most of it will be used to feed animals.

 

The supply situation has been further strained, as some of the wheat in government reserves since 2009-10 is deteriorating. China does not publish data on its state reserves, but analysts said state stockpiler Sinograin still holds between 20-30 million tonnes of wheat.

 

In addition to around 10 million tonnes of wheat being downgraded in Henan, production in Anhui, Jiangsu and Hubei provinces has also taken a hit. The four provinces produced nearly half of the China's wheat output in 2012, with Henan accounting for 26% of the country's total. Analysts expect Henan's output to fall some 20% from last year's 32 million tonnes.

 

Chinese buyers have been locking in cargoes for shipment even in the first quarter of 2014, which shows the shortfall in domestic supplies is likely to last over the next 12 months.