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February 09, 2011

China drought uncertainty tantalises wheat traders

Traders are betting China's drought could hurt its wheat crop and boost high global prices even further by forcing the country to eat into its vast reserves and push it closer to imports. The drought was "potentially a serious problem", the U.N. Food and Agriculture Organisation said on Tuesday in the latest warning about China's wheat output.

Another jolt may come later on Wednesday from the U.S. Department of Agriculture, which is expected to tighten its forecast for wheat supplies in a monthly report. Although China is not about to run short of wheat, since it says it holds more than a year's consumption in reserve, traders believe any erosion of the country's self-sufficiency would be seen as a big turnaround for the global wheat market.

 "Even if China just imported several million tonnes, it would have a significant psychological impact on the global market," said an analyst at a state-owned trading house in China. U.S. wheat futures are near a 30-month high, buoyed by strong demand and worries about threats to production in China and the United States. Read more ...

This blog is written by Martin Little The Global Miller, published and supported by the GFMT Magazine from Perendale Publishers.

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