February 9, 2009

China's main wheat crop may remain mostly unscathed from drought as Beijing moves to fund last-minute irrigation which will revive crops that might otherwise have died as farmers struggle with low prices and oversupply.

 

Massive global reports and public hand-wringing about the severity of the drought triggered some speculation that the world's biggest wheat producer might resort to imports, but experts said fears over the impact of the drought -- which officials have called the worst in half a century -- are misplaced and overblown.

 

On Thursday (Feb 5) Beijing declared an emergency over the drought in parts of northern China that lie between Beijing and the Yangtze river, which have seen little snow or rain since November.

 

Among the areas hardest hit is Henan--China's biggest wheat producing province-- which grows a quarter of the crop.

 

The drought area covers almost half of China's winter wheat fields, but only a fraction has suffered real damage so far.

 

Researchers said a bigger potential damage could be prevented if farmers irrigate their fields in time. The Agriculture Ministry said on Thursday (Feb 5) half the affected fields had been irrigated.

 

A forecast for rain across much of the area this weekend should help, although too little is expected to end the drought.

 

The government has mobilised millions of farmers to water their dry fields by offering subsidies and sending experts to minimise impact on seedlings which can help reduce losses to less than 3 million tonnes.

 

That could keep losses to less than 3 million tonnes, pulling overall production back from last year's record 112.5 million tonnes towards 2007 levels.

 

While farmers are not yet in the clear -- the damage could get worse if crops are starved of water during their critical growing phase in March and April -- China also has a sizeable supply cushion should the damage spread.

 

Even so, the drought has stoked anxiety among analysts and traders over short-term supply, combined with a drought in Argentina, Indian export controls and Pakistan imports.

 

Chinese wheat futures are up 5 percent since the market re-opened on Monday (Feb 2) after a holiday week, but physical prices have remained stable at the price set by the government for its own purchases.

 

On the CBOT, front month wheat futures jumped 3.6 percent on Thursday (Feb 5), although they are still down since the start of the month, as reports of the worsening crop began to circulate.

 

China is the world's top consumer and producer of wheat and almost 95 percent comes from China's winter harvest.