Nogger's Blog

09/02/11 -- What's the real story behind the Chinese drought? One news agency over there yesterday said it was the worst one in 60 years. Given that we had the worst one in 100 years two years ago, and that this one is worse than that (so they say), then this one is surely the worst in more than 100 years?

Mind you, the last time we had the worst drought in 100 years it didn't seem to make much difference to Chinese corn (or wheat) imports. In fact it made no difference at all. This year could be different though, as the government have auctioned off vast quantities of corn (and smaller but significant volumes of wheat) in the past twelve months depleting state-owned reserves. Those buffer stocks are no longer there, potentially paving the way for large scale imports later this year if the harvest fails to deliver.

At least that's the common theory. Despite all this China will end the 2010/11 marketing year with 60 MMT of both wheat and corn reserves according to the USDA last month. In the case of wheat that's 55% of domestic usage, and in the case of corn it's 37%. Whilst there is every possibility that the USDA numbers are overstated, that's a still a very sizable comfort zone.

The US Grains Council almost certainly "talking their own book" said recently that China may need to import 3-9 MMT of corn this year. Even if we take the upper figure that's only little more than 1% of world production, which hardly seems like a game changing shift in the global supply/demand balance sheet to me. And of course the 2011 crop isn't even in the ground yet.

Meanwhile, various weather services seem to disagree over exactly how bad things are drought-wise this year. "The situation is not as dire as 2 years ago," according to Martell Crop projections. Meanwhile QT Weather say that subsoil moisture reserves still exist from last year's summer flooding. As far as I am aware the Chinese haven't sent the army in or reached for the silver iodide yet either, which also suggests that things aren't as bad as 2008/09.