Chinese Wheat Production May Drop 20MMT

The first admissions that the worst drought in fifty years may lead to a significant drop in Chinese wheat production have come from analysts from the Research and Development Center of Jinshi Futures in Shanghai.

They have said that "summer wheat production might drop only 10 percent to 15 percent compared with last year, while wheat consumption would grow no more than one percent."

The problem that the Chinese government is facing is that they need to raise the price they are willing to pay farmers for the wheat. Unless this more than covers the extra cost of irrigation and fertilising the crop, then they simply won't do it.

"Farmers will be unwilling to fight against the drought if the grain can not be sold at a high price," said Ding Shengjun, a researcher with the State Grain Administration.

China's wheat crop is the largest in the world, coming in at around 110-112mmt in 2008. With planting this year expected to be down around 5% that gives us an anticipated pre-drought output of 105mmt. Knock off say 12.5% and that leaves us a final production figure closer to 90mmt, some 20mmt below 2008.

And that's if they are telling the truth.