Mention severe drought in China and Canadian farmers’ ears perk up.
China is so big that when it enters the world market to top up its needs, it buys in quantities that usually drive up the market.
Farmers remember the 1980s and early 1990s when China was a leading buyer of Canadian wheat. Last year, its pork purchases supported North American hog markets. This year it is supporting canola prices by buying large quantities.
China produced a bumper crop of 113 million tonnes of wheat from 59.3 million acres last summer, with winter wheat accounting for more than 90 percent of total area and output. Area seeded this autumn was estimated to be up only one percent.
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When China’s government two weeks ago declared a drought emergency in its winter wheat area, it caused speculation it might be forced to re-enter the wheat market.
But since then, the Chinese government has worked hard to quell domestic and international concerns about its wheat supplies.
China news media such as news.xinhuanet.com are full of photos of politicians, soldiers, firefighters, farmers and the public watering wheat fields with every means possible.
Some photos, like the one here of soldiers pouring pans of water on parched crops, spark incredulity, as do shots of China premier Wen Jiabao using a garden hose on fields.
I believe these must be publicity photo-ops for domestic consumption to try to convince the public the government is on top of situation. It was strongly criticized when food prices jumped in the last two years and does not want public unrest to grow.
There also are photos of farmers using flood irrigation that appear to be a more effective response to the fact that there has been little precipitation since the crop was planted.
Government agricultural experts have noted that the crop is still in winter dormancy, that it is not unusual to be dry in the winter and if rain falls in March, the situation can be saved.
Reports in Chinese newspapers deliver varying assessments of the damage potential, ranging from five to 15 percent.
Also, as I reported in December, China’s government decided to take advantage of the bumper 2008 harvest to build its stocks of grain, pork, vegetable oil and other critical foods. Its buying would support Chinese farmers’ income and create a national pantry that it could dip into the next time shortages threaten to drive up prices.
The government now holds 52 to 60 million tonnes of wheat, up from about 40 million tonnes at the end of 2007-08.
So even if production falls 15 percent, or about 16 to 17 million tonnes, the total supply (production plus carry-in) would be little changed from this year.
The big question is whether rain returns in March. If it doesn’t, China’s irrigation system, even supplemented by soldiers with buckets, is likely not up to the challenge of preserving the crop. Losses would likely be greater than 15 percent and it might have to tap foreign sources.
