The winter wheat planting areas in the drought-affected provinces accounted for 76.46% of the national total planting areas, and the output accounted for 81.95% of the total national output. The wheat consumption in the drought-affected regions accounted for 76.45% of total domestic wheat consumption.

The recent rainfall provided only a small benefit to the drought areas. The water demands of crops increase as the temperature rises, while the drought impact may still last. According to weather forecasts, the rainfall in north China and parts of the Yellow River and Huai River regions during February and March will continue to be of little relief and the drought will continue.

Industry experts estimate winter wheat output may reduce by 1.7m tons to 106.3m tons. If the drought is to last into April, output in drought-hit regions will be 10-15% lower.

FAO said in its report published on February 15 that the output of China wheat to be reaped in June is at risk from recurring drought conditions.

The spokesman of the Ministry of Foreign Affairs said on February that the domestic wheat reserve is sufficient to meet demand. China wheat imports (based on quota) are also small, therefore wheat imports to China will not have much of an impact on global wheat prices.

An official from the Ministry of Agriculture (MoA) said the young wheat crops have only currently entered the seedling period. The drought from last winter to this spring will have not much of an impact on this year's wheat output. The next four months from now to June is vital for output, given the sufficient rainfall and effective drought combat, China can still expect a good harvest this year. The MoA later said the daily mean temperature in most winter wheat planting regions in northern China (except west Gansu and parts of Shanxi and Hebei) has reached 3 degrees centigrade and above, which is beneficial for combating drought and irrigation.

Eoin Treacy's view Today's rebound in grain and bean prices highlights the fact that while there is heighted anxiety about the potential threat to oil supply, the shortage of grains is very real indeed.

Wheat pulled back sharply and almost completely unwound its overbought condition relative to the 200-day MA. It found support in the region of the upper side of the previous range and rallied impressively today. This action increases the potential for additional firming and a sustained move below 750¢ would be required to question this view.

Corn has had one of the more consistent uptrends which is indicative of a great dominance of demand over supply. Despite increased volatility, the medium-term uptrend remains consistent and the low near 665¢ would need to be taken out to question potential for some additional upside.

Soybeans lost momentum near 1400¢ and pulled back rather sharply on Tuesday. It has steadied above 1300¢ and a sustained move below that level would now be required to question potential for some additional upside.