Economy

Lingering drought sparks fears of wheat price hike

(Xinhua)
Updated: 2011-01-20 11:15

BEIJING -- The months-long drought in China's major wheat-growing regions is expected to continue, prompting fears of wheat price hikes.

Most northern Chinese regions, which account for more than 80 percent of the nation's total wheat output, will continue to see cold and dry weather in the next 10 days, the National Meterological Center forecast Wednesday.

Over the last three and a half months, precipitation in the hardest-hit provinces, like Henan, Shandong and Hebei, has decreased by as much as 90 percent from average levels, according to the State Flood Control and Drought Relief Headquarters.

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The drought had affected some 4 million hectares of crops and left about 2.2 million people short of drinking water, the headquarters said Monday.

Shandong's worst drought in 50 years has affected more than half of its winter wheat fields, or 2 million hectares, the local drought relief office said.

The drought will be the worst in 60 years if there is no substantial rainfall before Chinese Lunar New Year, which falls on February 3 this year, it said.

"If the wheat fields do not get water at the start of spring, output will definitely fall," said Yin Xuejing, a farmer in Juancheng County of Shandong.

This, together with projected drops in wheat output in other major producing countries like Australia, has put Chinese grain traders on alert.

China is the world's biggest wheat producer, with output exceeding 110 million tons last year, according to China Natinal Grain and Oils Information Center.

Zhang Zhixin, general manager of Xushui Zhixin Grain and Oil Trading Co in Hebei, has been to the wheat fields near his company to assess the drought situation several times this month.

"We grain traders are even more worried than farmers after months of no rain or snow," said Zhang. "We're anxious to know if the long dry spell will trigger wheat price rises."

If there's no precipitation before the end of Februray, wheat output and quality will drop and prices will climb, Zhang told Xinhua.

Li Guoning, general manager of Ningjin Zhongcheng Grain and Oil Trading Co also in Hebei, shared Zhang's concerns.

"The drought can become a speculation factor if it lingers into March," said Li. "The wheat futures market has already showed some signs of speculative buying."

Wheat futures for September delivery at the Zhengzhou Commodity Exchange has risen 2.3 percent this month.

Higher irrigation costs could also spur price hikes, Li said, adding that the drought this year is even worse than two years ago.

Despite the fears, many, however, say it's too early to predict a decline in wheat output and a rise in prices.

Jiao Shanwei, an analyst at China Grain, said wheat usually stops growing in the winter months and therefore needs little water.

"There won't be a big impact on the output if the wheat fields can be irrigated timely in spring," said Jiao. "But if the drought does not ease after Lunar New Year, wheat future prices will continue to surge," he added.