China Snow Fails to Ease Drought as Wheat Advances to Highest Since 2008

Snowfalls in China’s major wheat- growing regions failed to ease a drought, a government agency said. Wheat prices climbed to the highest level since August 2008 in Chicago and to a record in Zhengzhou.

The dry spell is likely to continue to affect crops as the weather is getting warmer and the winter wheat needs large amounts of water when turning green, Chen Lei, deputy director at the State Flood Control and Drought Relief Headquarters, said in a statement posted on its website on Feb. 12.

The country “faces an arduous task of fighting drought,” Chen said. “Enhanced efforts of irrigation, recent rain and snowfalls helped prevent the drought spreading in some winter- wheat growing areas.”

China, the biggest grains consumer, will spend 12.9 billion yuan ($2 billion) to fight the dry spell and boost grain output, China Central Television said on Feb. 10, citing Premier Wen Jiabao. Wheat for May delivery advanced as much as 1.8 percent to $9.15 a bushel today, the highest level for the most active contract since Aug. 22, 2008, while in Zhengzhou the price rose as much as 3.7 percent to 3,110 yuan ($471) per metric ton.

“Much more precipitation is needed before the spring growing season,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report e-mailed today.

Wheat Purchases

About 42 percent of the total area planted with wheat in China’s eight major producing provinces has been hit by the dry spell that may last into the Chinese spring, Minister of Agriculture Han Changfu said last week.

As of Feb. 10, the drought had affected 6.75 million hectares of crops, leaving 2.8 million people and more than 2.5 million livestock short of drinking water, the state-run Xinhua News Agency said. Rain on the North China Plain has been “substantially” below normal since October, the United Nations Food and Agriculture Organization said on Feb. 8.

Drought could force China, largely self-sufficient in wheat, to buy more from overseas, according to Jason Britt, the president of Central States Commodities Inc., a broker in Kansas City, Missouri last week.

Snowfall tomorrow night and on Feb. 16 will bring slight relief to the parched winter-wheat area, the meteorological service said. The central and eastern part of the northern China Plain will receive snow from a weak cold front, it added.

Make or Break

Snow had fallen in drought-hit provinces including Hebei, Shanxi, Henan, Shandong, Jiangsu and Anhui since Feb. 9, said the National Meteorological Center. Henan, the top wheat-growing province, had an average of 5.5 millimeters and some areas got as much as 23 millimeters, the province’s weather agency said.

Rainfall “can make or break the Chinese wheat crop,” said Michael Pitts, a commodity sales director at National Australia Bank Ltd. “If we get rainfall over the next two months, the problems go away,” he said.

The provinces hit hardest by the drought are Shandong, Jiangsu, Henan, Hebei and Shanxi. Together, they accounted for 67 percent of Chinese wheat production in 2009, the FAO said on Feb. 8. China has 14 million hectares planted with winter wheat in those provinces, of which about 5.2 million hectares may have been damaged, it said.

China will consume about 17 percent of the world’s wheat in the year through June, 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 U.S. Department of Agriculture estimates. Macquarie Group Ltd. said it expects output to drop a further 4 million tons this year.

--Xiao Yu, Feiwen Rong, Luzi Ann Javier. Editors: Andrew Janes, James Poole

To contact the Bloomberg News staff on this story: Xiao Yu in Beijing at yxiao@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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