China wheat crop report perplexes analysts

Amid market turmoil caused by Russia’s invasion of Ukraine, the world’s biggest wheat producer just announced it may be harvesting its worst crop in history.

Tang Renjian, China’s minister of agriculture and rural affairs, recently told reporters that heavy rainfall and flooding in fall 2021 delayed the seeding of about one-third of the country’s winter wheat crop.

A pre-winter survey of experts concluded that the amount of wheat that will make the top two grades could be down by more than 20 percentage points.

“Not long ago we went to the grassroots to do a survey and many farming experts and technicians told us that crop conditions this year could be the worst in history,” he said.

“This year’s grain production indeed faces huge difficulties.”

Wheat prices had already been on a tear due to the war in Ukraine, which is threatening 29 percent of world wheat exports. Prices on the Chicago Board of Trade as of March 8 were up 60 percent since the start of the conflict.

MarketsFarm analyst Bruce Burnett said that’s what makes the timing of China’s announcement so odd.

“When you have global prices rising rapidly, it’s not typical behaviour in China to say, ‘our wheat sucks’,” he said. “I’m not really sure what to make of it.”

The market seemed to shrug off the news from China. In fact, Chicago wheat prices fell about 85 cents per bushel on March 9, the day after the China announcement.

“There is so much speculative money in the wheat market right now that I don’t know if a lot of the fundamental stories change too much right now,” said Burnett.

While he is puzzled by the timing of China’s announcement, the minister’s comment makes sense based on the weather conditions that existed at planting time.

Almost all of China’s wheat is winter wheat and the planting delays likely made the crop more susceptible to disease and winterkill, so there could indeed be yield and quality issues.

The crop is grown in the central and northern parts of the country. Harvest will begin in the most southern regions shortly and will continue through May in the north.

China imported 9.77 million tonnes of wheat in 2021, which was a huge increase over its typical purchases of three to five million tonnes and slightly higher than its tariff rate quota (TRQ) of 9.64 million tonnes.

Burnett said it will be interesting to see what China does if there is a big shortfall in its domestic crop. It could dip into its reserves or possibly import more wheat or raise the TRQ.

That would obviously be bullish for a market that is already in full stampede mode.

The Western Producer

Tags: Ukraine, Russia, China, export, prices, rainfall, wheat, flooding