In the report, the USDA said wheat output in 2018-19 is forecast at 129 million tonnes, down from 129.77 million tonnes in 2017-18 and compared with 128.845 million tonnes in 2016-17.

Harvested area also is forecast lower in 2018-19, at 23.9 million hectares, which compares with 23.99 million hectares in 2017-18.

“Industry sources report that China’s new land rotation policies may lead to some shifts in national wheat production area,” the USDA noted in the report.

The USDA said standard wheat is a shrinking share of the market, and China’s wheat producers have begun planting new varieties of high protein wheat, which they are hoping will capture higher premiums to offset significant declines in yields.

“Many large-scale operations that directly contract with flour mills have already shifted production to high-protein wheat varieties,” the agency noted in the report. “Others have adopted organic wheat production practices forgoing fertilizer, pesticide, and fungicide. Given current prices, wheat production margins remain relatively strong compared to alternative crops like barley and oats, which are not eligible for government minimum support price programs.”

Consumption of wheat is forecast at 118.5 million tonnes in 2018-19, up from 117 million tonnes in 2017-18. Citing industry sources, the USDA said flour mills in China are operating at about 40% capacity.

Wheat imports in China are forecast at 4 million tonnes in 2018-19, unchanged from 2017-18, while exports are forecast at 1.2 million tonnes in 2018-19, up from 1 million tonnes in 2017-18.