China’s wheat fields battered by heavy rains prompting concern over quality and production

30 May 2023 --- Continuous rain spanning several days has prevented the normal ripening and harvesting of wheat in Henan, China’s top wheat-producing region, according to the country’s Ministry of Agriculture. This could lead to production declines and quality shortfalls forcing China to ramp up imports.

The unfavorable weather comes just as farmers begin June wheat harvest efforts. Field workers have reportedly managed to collect 4.5% of their produce. 

The torrential rains which have been on-going since last week is causing some of the wheat to sprout or become affected by blight. 

Henan produces over a quarter of China’s wheat (28%), with80% of the country’s cereal produced in the area and bordering regions of Shandong (19%), Anhui (12%), Hebei (11%) and Jiangsu (10%), according to US Department of Agriculture (USDA) data.

The USDA puts China as the largest wheat producer with the country producing approximately 135 million metric tons in the market year 2022 to 2023. China is also the largest importer of the commodity, at 12 million metric tons. 

Lower outputs could force China to seek more imports putting upwards pressure on wheat markets, which could potentially end the downward trend for international wheat prices that declined 2.3% in April to their lowest level since 2021. 

Soft prices for the cereal are principally driven by large productions in Russia and Australia, according to the UN Food and Agriculture Organization. 

The USDA puts China as both the largest wheat producing and importing nation.Pervasive rains
China’s Ministry of Agriculture notes that the rains have had a wide range of influence and covered a large area, causing rain accumulation in wheat fields in some places, in what they call the worst “field rain” weather in a decade.

While the country rushed to harvest before the rain and farmers managed to recollect most mature wheat, the majority of the fields remain unharvested.

However, authorities are optimistic that most harvesting operations can resume tomorrow. Nonetheless, it will require intense wet grain drying efforts and large farmers and agriculture machinery mobilizations.

Closing bonds with Australia?
Australia rose in 2022 as a key supplier of agricultural goods for China. Worsening crop outlooks could intensify China’s dependence on the Oceanic country. 

Last week Don Farrel, Trade Minister of Australia, met with Wang Wentao, Commerce Ministry of China, where they negotiated the removal of an 80% tariff on Australian barley. 

However, Australia’s record wheat production of last year will not continue throughout 2023, as the USDA predicted. In an official “wheat outlook” earlier this month, the country’s wheat crop is projected to decline from 39 to 29 million metric tons.

Even with three consecutive record crops and high stocks, the country is expected to export eight fewer million metric tons this year. 

Trouble for international wheat prices?International wheat prices are at its lowest level since July 2021.
Australia is not the only country with a worsening wheat crop outlook. Russia, which is also coming from a record 2022/2023 crop, will deliver 10.5 fewer million metric tons this year, driven by lower harvested area and yields. 

Ukraine estimates are also considerably lower in Ukraine (declining by 4.4 million metric tons) and Kazakhstan (down 2.4 million metric tons). 

Meanwhile, US wheat stocks are projected at a 16-year low, with the country's exports at 1971/1972 lows. 

Argentina is an outlier to an overall complex situation. A bumper crop in the country, which is predicted to recover from last year’s drought-stricken crop and export 7.5 more million metric tons of wheat, will offer some relief to markets. 

India is also set to produce more wheat this year (production up 6 million metric tons), however the country applies a wheat export limit from May 2022. 

The extension of the Black Sea Grain Initiative, earlier this month, is also positive news for global cereal markets. 

By Marc Cervera

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