China’s Drought has Global Implications

The Globe and Mail reports that China’s severe drought – the worst in two centuries in some areas, according to Xinhua – is impacting and supply around the world:

China is grappling with just as food prices here and in many parts of the world are soaring, creating concerns that unrest could spread as poor countries find many items unaffordable. Broader inflation is also a rising worry in China and other fast-growing emerging markets, and a problem in some slow-growth countries such as the United Kingdom. Rising prices for an array of goods could destabilize global economic recovery as companies cope with higher costs and central banks around the world feel mounting pressure to raise interest rates and slow growth.

Wheat prices on the benchmark Chicago Mercantile Exchange hit their highest level since the 2008 financial crisis earlier this week before sliding back after assurances from Beijing that the country still had “abundant” grain reserves.

Wheat also hit a record high this week of 3,110 yuan ($466) per ton on the Zhengzhou Commodity Exchange – China’s main grain-trading floor – amid predictions from international experts that this year’s harvest could fall as much as four million tons shy of last year’s 114.5-million-ton crop.

In addition to concerns about China’s crop, wheat prices have been driven up by floods in Australia and a year-old ban on exports from Russia – normally one of the world’s biggest producers and sellers – caused by a prolonged drought there.

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