China's domestic wheat prices may extend gains as cold weather hinders harvesting of the grain in the world's biggest grower.

About 3.5 million hectares of wheat growth is rated as third class or inferior due to the cold weather that has swept major wheat growing region in northern China this spring, the Ministry of Agriculture said in a statement this week.

Premier Wen Jiabao presided over a meeting this week to address the severe situation for agricultural production, saying that each hectare of affected wheat will receive 150 yuan in subsidy to fight the impact of the cold weather.

The price of agricultural products will rise 4 percent on average this year, said a report released earlier this week by the Rural Development Institute under the Chinese Academy of Social Sciences.

Other reports released recently, including one from Dongxing Securities, gave a more pessimistic forecast of 10 percent grain price increase this year.

On top of adverse weather conditions, excessive liquidity and speculative money in agricultural commodities will further increase grain prices, according to Dongxing Securities.

Hard white wheat for September delivery closed at 1,971 yuan a ton on Thursday, slightly up over the previous trading day.

According to statistics from the Ministry of Agriculture, national reserves kept selling about 4.5 million tons wheat per week recently to stabilize the market price.

Chinese wheat imports doubled in the first quarter of 2010 from the same period last year to 375,000 tons.

Chen Zhigang, a researcher at International Food Policy Research Institute, said China is likely to continue grain imports to pile up reserves amid expectations that crop yields will decrease due to the cold weather.

Wheat supplies have further reduced as many farmers, with an eye on higher prices, have decided to hold on to their stocks, said Chen.

Chen said in March that the national wheat benchmark will increase 0.2 yuan a kilogram this year, up 12 percent from 2009 to encourage wheat growing and selling.

(China Daily April 23, 2010)