China may become top wheat importer after crops ruined
The supply situation has been further strained, as some of the wheat in government reserves since 2009/10 is deteriorating. China does not publish data on its state reserves, but analysts said state stockpiler Sinograin still holds between 20-30 million tonnes of wheat.
Serious Crop Losses
In addition to around 10 million tonnes of wheat being downgraded in Henan, production in Anhui, Jiangsu and Hubei provinces has also taken a hit.
The four provinces produced nearly half of the China's wheat output in 2012, with Henan accounting for 26 percent of the country's total. Analysts expect Henan's output to fall some 20 percent from last year's 32 million tonnes.
"Good-quality wheat is in a short supply," said Liu Xuepeng, a purchasing manager with a major flour mill in Zhengzhou, capital of Henan.
Millers will need to blend lower-quality wheat with high-quality domestic and imported grains to make flour, he said.
Sinograin is focusing on buying soft red winter wheat from the United States and similar varieties from France and Australia. Flour mills are keen to import high-quality Canadian and U.S. hard red winter wheat to blend for making flour for making bread and biscuits.
Higher imports of top-grade wheat by China would drive up premiums for protein-rich spring wheat traded on the Minneapolis Grain Exchange <0#MWE:> and hard red winter wheat on the Kansas City Board of Trade <0#KW:>.
Although the global wheat market was underpinned by Chinese buying last week, U.S. wheat prices are still around 9 percent below domestic prices of similar quality cited in Jiangsu province, encouraging imports.
Chinese buyers have been locking in cargoes for shipment even in the first quarter of 2014, which shows the shortfall in domestic supplies is likely to last over the next 12 months.
"The way they are buying is something very unusual," said a Singapore-based trader. "They have been signing deals for Australian new-crop wheat and other origins for shipment in the first quarter of 2014. This shows some serious problems with the crop."