China wheat output dips for first time in a decade

by Agrimoney.com

China's wheat harvest will fall this year for the first time in a decade, US officials warned, as raising their estimate for imports, and signalling that the dent to quality may be far higher than has been thought.

China's wheat harvest, the world's biggest for a single country, will fall by 2.6m tonnes to 118.0m tonnes the US Department of Agriculture's Beijing bureau said, downgrading its forecast.

The forecast of an output decline, the first for China since 2003-04, comes amid a fresh market focus on the country's wheat supplies, after it followed up a purchase of 200,000 tonnes of French wheat two weeks ago with acquisitions this week from Australia, of a reported 300,000 tonnes, and the US, of 360,000 tonnes.

The USDA bureau lifted its forecast for Chinese wheat imports in 2013-14 to 4.0m tonnes, a rise of 1.0m tonnes year on year, although other commentators have lifted their estimate for purchases to 5.0m tonnes.

Feed imports too

China had already purchased some 1.6m tonnes of US wheat alone for the newly-started 2013-14 season, before this week's order.

"Given the price competitiveness with local production and demand for better quality, imports are blended with local production at flour mills, particularly in the south coastal province of Guangdong," the USDA bureau said.

The elevated prices of Chinese corn are prompting some feed mills to turn to imported wheat too, with traders reporting purchases from France.

"Reported prices for French wheat are more than 100 remninbi ($15) per tonne lower than offered for domestic corn."

High prices

Separately, China was revealed, in the top wheat producing province of Henan, to have stopped buying wheat for state stockpiles because of the boost these purchases were giving to prices of the grain.

Henan produces about one quarter of the national harvest.

On the Zehngzhou futures exchange, the best-traded January wheat contract closed on Thursday at 2,762 remninbi per tonne, up 5% over the past month.

Chicago wheat, the world benchmark, has lost more than 7% over the same period, as measured by the best-traded September contract.

'Shrunk, mould-damaged kernels'

The USDA bureau blamed the drop in China's harvest on "yield losses from adverse weather" - signally "prolonged rainy days in late May and June" in Henan and other major producing provinces such as Anhui and Hubei, dampness which had hurt quality too.

Rain, while generally helpful to yields earlier in the season, can damage crops close to maturity by encouraging head blight and sprouting of kernels.

"There is a relatively high rate of unsound kernels, such as moulded or germinated kernels, in this year's crop," the USDA said, quoting industry sources.

Indeed, the report quoted an estimate from Henan state grain company saying that in the southern part of that province, which as a whole produces some 30m tonnes of wheat a year, "approximately 10m tonnes of wheat failed to meet quality standards as required for state reserves due to a relatively high rate of unsound kernels - shrunk, germinated, or mould damaged".

Market talk has been of some 10m tonnes of the whole Chinese crop being downgraded.

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