China to Spend $2 Billion to Fight Drought, Boost Grain Output
China to Spend $2 Billion to Fight Drought
Keith Bedford/Bloomberg
China, the top wheat consumer, is enduring a prolonged drought in its main growing region, according to Minister of Agriculture Han Changfu.
China, the top wheat consumer, is enduring a prolonged drought in its main growing region, according to Minister of Agriculture Han Changfu. Photographer: Keith Bedford/Bloomberg
China, the world’s biggest grains consumer, will spend 12.9 billion yuan ($1.96 billion) to bolster grain production and fight drought, China Central Television reported today, citing Premier Wen Jiabao.
The country should use reserves, imports and exports to balance the grain market and is able to keep overall consumer prices basically stable, CCTV cited Wen as saying.
China, the top wheat consumer, is enduring a prolonged drought in its main growing region, according to Minister of Agriculture Han Changfu. Speculation production will be cut has helped push wheat in Chicago, the global benchmark, to the highest level in more than two years and prices in China to a record. The government is seeking to curb inflation which may have quickened to a 30-month high in January.
“The government may tap the state wheat reserves and boost imports if cash prices climb too much,” Tommy Xiao, analyst at Shanghai JC Intelligence Co., said by phone from Shanghai today. “From our point of view, the effect on grain production isn’t reversible and it may worsen if the drought cannot effectively be alleviated.”
About 42 percent of the total area planted with wheat in China’s eight major producing provinces has been hurt by a dry spell that may last into the spring, according to minister Han. Rain on the North China Plain has been “substantially” below- normal since October, according to the UN Food and Agriculture Organization on Feb. 8.
Drought could force China, largely self-sufficient in wheat, to buy more from overseas, according to Jason Britt, an analyst at Central States Commodities Inc.
Stockpile Drop
“That sends a little bit of a shiver through the market,” Britt said by telephone from Kansas City, Missouri, this week before Wen’s comments. China may import 1 million tons of wheat this year, compared with 9.8 million tons by Egypt, the top buyer, according to the U.S. Department of Agriculture.
“For a country as big as China to show some early problems, it’s not very encouraging,” Abdolreza Abbassian, a senior economist at the FAO, said yesterday. The drought in China may cut the chance of replenishing stockpiles, he said. Inventories may drop 6.4 percent this year, FAO data show.
Snow has fallen in drought-hit provinces including Hebei, Shanxi, Henan, Shandong, Jiangsu and Anhui since yesterday which will help relieve dryness, the National Meteorological Center said on its website. Henan, the top grower, had on average 5.5 millimeters of snow and some areas got as much as 23 millimeters, the weather agency in the province said.
Record Prices
Wheat futures in China surged to as much as 3,064 yuan ($465) a metric ton today, a record for the most-active contract, before falling to 3,036 yuan. The price in Chicago, a global benchmark, fell 1 percent to $8.7725 a bushel after jumping to $8.9325 a bushel yesterday, the highest level since August 2008.
China’s consumer prices advanced 3.3 percent last year, breaching a government target of 3 percent. The January rate may have accelerated to 5.4 percent, according to the median estimate of 26 economists surveyed by Bloomberg, from 4.6 percent in December.
The People’s Bank of China on Feb. 8 raised the one-year lending rate by 0.25 percentage point to 6.06 percent and the one-year deposit rate an equivalent amount to 3 percent.
The provinces hit hardest in China are Shandong, Jiangsu, Henan, Hebei and Shanxi, providing 67 percent of production in 2009, the FAO said on Feb. 8. China has 14 million hectares (34.6 million acres) planted with winter wheat in those areas, of which about 5.16 million hectares may have been hurt, it said.
China will represent about 17 percent of global use in the year to June 30, according to data from the London-based International Grains Council. The country’s output may have dropped to 114.5 million tons at the last harvest from 115.1 million tons a year earlier, the USDA estimates. Macquarie Group Ltd. expects output to drop a further 4 million tons this year.
--Winnie Zhu. Editors: James Poole, Jake Lloyd-Smith
To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net
To contact the editor responsible for this story: Jim Poole at jpoole4@bloomberg.net
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