Wheat Climbs After China Makes Biggest Weekly Purchase in Almost Six Years

Wheat futures extended the biggest advance in a week on unexpected demand from China for exports from the U.S., the world’s largest shipper.

China, the biggest consumer, bought 116,000 metric tons from the U.S. in the week ended March 17, the most for any week since July 2005, Department of Agriculture data showed. Wheat in Zhengzhou jumped to a record last month on speculation that drought in the country’s growing areas would cut supplies. Rains and irrigation have partly eased concerns since then.

“Imports will rise by more than 30 percent this year to top 2 million tons, because we suspect that the local harvest may be 11 million tons short of the government estimate,” Li Qiang, managing director of Shanghai JC Intelligence Co., said in a phone interview today.

Production will be little changed at 115.1 million tons in the year ending June, the China National Grain and Oils Information Center predicted this month.

“From a regional standpoint, if China’s having a problem in their central and northern growing belts, it would probably show up first in wheat” crops because the growing season is earlier than corn, said Mike Zuzolo, the president of Global Commodity Analytics & Consulting in Lafayette, Indiana. China also may be buying to cool food inflation, he said.

Wheat futures for May delivery climbed 0.6 percent to $7.4425 a bushel at 10:33 a.m. in Beijing today after yesterday increasing 3.5 percent, to $7.395 on the Chicago Board of Trade, the biggest gain for a most-active contract since March 17.

Price Surge

The price has surged about 56 percent in the past year as drought spurred Russia to ban grain exports, while floods eroded crops in Canada and Australia. Worldwide food expenses reached a record last month, the United Nations said.

Chinese food costs jumped 11 percent in February from a year earlier. The country is expected to be self-sufficient in wheat this year after becoming a net importer in 2010 for the first time in five years, according to the USDA.

The amount was a “surprise,” said Larry Glenn, an analyst at Frontier Ag in Quinter, Kansas. China in 2010 was a net importer of corn for the first time in 14 years, USDA data show.

“Based on my experience, if you’re really expecting China to buy corn, you’d expect them to buy wheat first,” Zuzolo said. “Their policy is to try to keep more corn in-house, not export it, but not import it either. Their policy is more prone to bringing in wheat than it is corn.”

High Quality

China’s purchase announced yesterday included 90,000 tons of the hard, red spring variety, 20,000 tons of white wheat, and 6,000 tons of soft, red winter wheat, the USDA said. Spring wheat, grown in the north central and northwest U.S., is used to make bread. White wheat is for bread and noodles, while the soft, red winter variety is for cookies and pastries.

“The Chinese demand for animal feed is robust, so China may import high-quality U.S. wheat for flour and use its own low-quality varieties as feed,” Shanghai JC’s Li said. “China is also importing Australian feed wheat these days.”

Futures also gained on speculation the U.S. Great Plains won’t get sufficient rain to relieve dry conditions, Glenn said.

Texas has its worst drought in 44 years, according to the state climatologist, and dryness stretches to Oklahoma, Colorado and Kansas. Some areas may get 0.5 inch (1.3 centimeters) of rain in the next week, Commodity Weather Group said.

“We do have some moisture headed at the Plains states, but I don’t think it’s going to be enough,” Glenn said.

Wheat was the fourth-biggest U.S. crop in 2010 at $13 billion, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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