China, Largest Wheat Grower, Facing Threat of Drought

China, the world’s largest wheat producer, is contending with severe drought in the main region growing winter varieties of the grain, adding to concern about food supply at a time of record global prices.

Rainfall has been “substantially” below normal in the North China Plain since October, with a thinner cover of snow that protects plants against frost, the United Nations’ Food and Agriculture Organization said in a report today. That may harm the crop scheduled to be harvested in June, the FAO said.

Wheat traded in Chicago, a global benchmark, surged 76 percent in the last year as drought in Russia, flooding in Canada and parched fields across Europe ruined crops. Protests partly linked to food prices have erupted across North Africa and the Middle East in the last month, spurring governments to accelerate grain purchases to contain domestic prices.

“The drought has been bad enough for long enough in China that the crop is not likely to be what it was in 2010,” said Alex Bos, a London-based analyst at Macquarie Bank. “The thing with winter kill is there’s no way you can quantify any of the damage until the crop comes out of dormancy.”

China is also the world’s largest wheat consumer and will account for about 17 percent of global usage in the year through June, the London-based International Grains Council forecasts.

Wheat Production

Chinese wheat output may have dropped to 114.5 million tons at the last harvest, compared with 115.1 million tons a year earlier, the U.S. Department of Agriculture estimates. Macquarie expects production to decline another 4 million tons this year.

“This drought in North China seems to be putting further pressure on wheat prices,” the Rome-based FAO said. “The situation could become critical if a spring drought follows the winter one.”

The provinces most affected by drought are Shandong, Jiangsu, Henan, Hebei and Shanxi, accounting for 67 percent of national wheat production in 2009, the FAO said. China has 14 million hectares (34.6 million acres) planted with winter wheat in those provinces, of which about 5.16 million hectares may have been affected by the drought, the FAO said, citing government estimates.

“Temperatures are beginning to heat up in North China, coaxing wheat out of dormancy,” Gail Martell, an agricultural meteorologist at Whitefish Bay, Wisconsin-based Martell Crop Projections, wrote in a report. “Rain is needed soon.”

Additional Irrigation

The government is seeking to alleviate the situation by providing additional irrigation and “relatively mild” temperatures are also helping, the FAO said. Shortages of drinking water are affecting 2.57 million people and 2.79 million livestock, the FAO said.

The Chinese drought “is a supportive factor for the rally right now,” Bos said. “No matter how you look at the wheat market, it’s getting more bullish.”

Global grain stocks are forecast to drop 15 percent to 342.4 million tons at the end of June, while wheat inventories will drop 6.7 percent to 184.8 million tons, the IGC estimates.

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