China's Wet Wheat Problem

Torrential rains drenched wheat just before harvest in China's biggest wheat-growing province, causing sprouting and mold problems. Now officials face challenges of buying up low-grade wheat at a price that keeps farmers happy, keeping moldy wheat out of the flour supply, funding wheat purchases after financial coffers were drained by last year's zero-covid policies, and forestalling fraud as vast price spreads open up between different grades and regions.

Sprouted wheat in Henan Province.

Henan Province had heavy rainstorms during the last week of May, especially in southern and western parts of the province. These were the heaviest rains at harvest time since 1961 according to financial news outlet Cai Lian She. The excessive moisture caused wheat stalks to keel over, prompted wheat kernels to prematurely send out shoots and wet wheat became susceptible to mold growth. Depending on the degree of damage, the sprouted wheat is downgraded and may only be useable as feed. Wheat with high levels of vomitoxins from mold can only be used for alcohol fermentation.

Economic Daily said the phenomenon of widespread sprouting of wheat crops previously occurred in 1956, 1987, 2009, 2013, 2016, and 2018. Another outlet said this was the worst rain during the wheat harvest in 10 years. There are also problems with wheat reported in Anhui and Shaanxi Provinces.

In some areas the entire wheat crop was downgraded or entirely unsuited for flour-milling. A farmer in Henan's Zhucheng district said half of his family's 200 mu (about 30 acres) of wheat had sprouted and 80-90-percent of the crop was impacted by the rain. 

A flour mill in Henan's Shangqiu district posted a notice saying that it would reject all local wheat from the 2023 harvest, attracting a lot of online attention. A reporter tried to contact the mill to confirm the report but no one would speak to him, and the online posting of the notice disappeared. Three days later--responding to the attention given to the notice--the county announced that it had designated 10 state-owned warehouses that would purchase wheat damaged by the rain.

Notice posted by a feed mill June 6, 2023 says it will not purchase any wheat from the 2023 harvest.

On June 5, another flour mill in western Henan posted a notice that it would not purchase sprouted wheat. A spokesperson for the mill told the reporter wheat sprouting is commonplace in this year's wheat. The sprouted wheat produces flour that is sticky and tastes bad, and steamed buns have an unfamiliar texture, so the mill is reluctant to buy local new wheat.

Feed merchants were reportedly eagerly purchasing sprouted wheat in Henan at discounted prices.  The national average price for wheat was reportedly about 1.35 yuan per 500g, while sprouted wheat meeting grade for flour use was purchased at 1-to-1.2 yuan, sprouted wheat for feed use was purchased at 0.8-0.9 yuan, and sub-standard wheat was purchased at 0.6-0.8 yuan per 500g.

Last week Chinese officials published announcements promising that wheat damaged by rain would be purchased by state-owned warehouses designated for the off-quality wheat. The special purchasing program has dual purposes of reducing farmers' losses and preventing toxic wheat from entering the food supply. Henan Province says it has designated 745 warehouses to purchase damaged wheat.

Henan's Zhengzhou city has set a minimum price of 1.16 yuan/500g for damaged wheat compared with a price of 1.4 yuan for wheat meeting national standards. In a June 5 "Letter to brother farmers in the county," Lankao county leaders announced a price of 0.9 yuan/500g for wheat with 13.5% moisture. In Zhumadian a price of 1 yuan/500g was set for sprouted wheat that meets national standards and 0.8 yuan if it doesn't meet the standard.

By comparison, the national minimum procurement price is 1.17 yuan/500g, but wheat has to meet minimum grading requirements to be eligible. 

Commentary on Economic Daily's web site asked rhetorically, "Where will the money come from to fund purchases of the damaged wheat? How many days of procurement will it fund?" 

Most local governments in China are strapped for cash after last year's money-draining covid-19 lockdowns and constant testing. A video posted by an anti-communist party organization last week showed lines of wheat harvesters held up by local officials in Henan demanding extra tolls, taxes, and fees for overweight trucks, reportedly a ploy to replenish local government coffers. It's not clear who will pay to buy up damaged wheat in order to keep farmers happy.

In 2018, provinces were ordered to implement similar programs to buy up damaged wheat using funds from provincial "grain risk funds" and the provincial budget if necessary.

Local grain officials say they will inspect every batch of wheat for toxins and grading, set aside special warehouses for storage of damaged wheat and recruit feed millers and distilleries to buy up bad wheat with strict supervision to prevent toxic wheat from entering the food supply. Officials are also watching to prevent warehouses from discounting wheat by downgrading it or issuing IOUs in payment. 

Insurance indemnities for damaged wheat losses are also uncertain. In an Economic Daily article, a Renmin University professor recited instructions to improve insurance coverage for grains in recent documents issued by communist party officials but there is nothing concrete about coverage for this year's rain damage.

Before the rains in May Chinese wheat prices were declining. On May 24, 2023 the national average for standard wheat was 2700 yuan per metric ton (1.35 yuan/500g), down from 3091 yuan per ton a year earlier. Mid-May 2023 wheat prices were down about 12 percent from about 3065 yuan/metric ton in November 2022. 

After it became evident the rains had damaged the wheat crop, the average wheat price jumped to a peak of 2822 yuan/metric ton June 1--still well below November prices--before the price eased last week. On June 9, wheat prices quoted by Mysteel.com ranged from 2750 yuan/metric ton in Dezhou, Shandong to 2,900 yuan/metric ton in Zhoukou, Henan.