Heavy Rain and Humidity Is Decimating China's Wheat Supply

The second-largest economy represents the world’s largest producer and consumer of wheat. The strategy to shift from corn to wheat for animal feed is certainly affected by this recent harsh climate.

“Millions of tonnes of unharvested wheat have been affected by unusually heavy rainfall in central China’s Henan province – which accounts for more than a quarter of China’s wheat output – and in neighbouring areas, according to an estimate by an agricultural analyst,” the South China Morning Post report said.

The heavy rainfall, per the report, started last Thursday, so it’s already been a week. The province of Henan is supplying emergency funds to farmers equal to $28.3 million.

What this will do to wheat prices remains to be seen. Conventional wisdom says that this could hamper supply, which could be ideal for bullish wheat traders hoping for rising prices.

This is much needed for bulls, as prices have been on a steady downtrend. This is not only apparent in prices, but is also translating to a 24% loss for the S&P GSCI Wheat index.

This heavy rainfall is not all that common, according to Ma Wenfeng, a senior analyst with Beijing Orient Agribusiness Consultancy. As such, traders may want to pounce if an opportunity presents itself. In this case, that opportunity might be a chance to take advantage while wheat prices are low.

“At least 20 million tonnes of wheat have been affected,” said Ma, who also mentioned that the damaged crops “will be refused by food-processing companies and probably end up as animal feed."

“Such a phenomenon normally occurs once every three or four years, but the scale of the fields affected this year is rare,” Ma said.

Traders can also use wheat-focused funds as a trading tool. In particular, the Teucrium Wheat Fund (WEAT C) provides investors an easy way to gain exposure to the price of wheat futures in a brokerage account.

For more news, information, and analysis, visit the Commodities Channel.