Chinese drought could be 'severe'

Wheat prices continued to spike Wednesday as Chinese officials said they were preparing for a long, severe drought in the country's already-parched major grain-growing area.

March wheat settled up 1.3 per cent, to $8.86 US a bushel, on the Chicago Board of Trade after rising as high as $8.9325 earlier in the day. Prices have gone up about 35 per cent since mid-November.

The prospect of a poor harvest on the North China Plain raised the likelihood the world's largest consumer of wheat might have to increase imports, putting more pressure on stretched global supplies.

China has said the drought is mainly affecting Shandong, Jiangsu, Henan, Hebei and Shanxi, which grow more than two-thirds of the country's wheat.

"What we are doing now is making full preparations to deal with a severe, long-lasting drought," said the director of emergency relief at Shandong's weather bureau. Like many Chinese officials, he would not give his name.

State news media have said the eastern province of Shandong faces its worst drought in 200 years, and the other affected provinces in the north and east face their worst in 60 years. Shortages of drinking water have affected 2.6 million people.

The UN's food agency has warned that the drought is driving up prices.

Average flour prices rose more than eight per cent in January from the previous two months.

Harvest is in June

China's winter wheat harvest isn't until June. Whether it's a failure depends on whether the country avoids a spring drought after the winter one and on whether temperatures don't plunge this month.

"At the moment, we're not projecting China to be a significant importer in the current year," said Amy Reynolds, senior economist with the London-based International Grains Council.

She said global wheat stocks are tight, but it's very difficult to tell how much wheat China has stockpiled.

Reynolds predicted China would import from about two million to three million tonnes of wheat this year under current conditions, not much above the country's usual import level.

Grain crops in other major producer nations such as the United States, Australia and Canada have been reduced by bad weather and natural disasters.

Meanwhile, wheat prices shot up in the last few months after Russia imposed a wheat export ban and Ukraine, another major grain exporter, imposed quotas on exports because of drought.