Droughts wilt wheat crops worldwide

By Time of article published Jun 13, 2011

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The worst droughts in decades are wilting wheat fields from China to the US to the UK, driving prices to the highest levels since 2008 despite Russia’s return to grain export markets.

Parts of China, the biggest grower, have had the least rain in a century, some European regions are the driest in 50 years and almost half the winter-wheat crop in the US, the largest exporter, is rated poor or worse. Rabobank International estimates that inventory is dropping 8.8 percent, the most in five years.

Prices will rise 20 percent to $9.25 a bushel (R2 283 a ton) by year end, according to a survey of 14 analysts and traders.

Wheat prices as much as doubled in the past year as crops failed, spurring Ukraine and Russia to curb shipments and increasing the US share of global sales by the most since 2004. The end of Russia’s export ban on July 1 and the lifting of quotas by Ukraine may not be enough to rein in prices as crops wither elsewhere, fuelling gains in food prices which the UN says are already near a record.

“In 32 years, I’ve never seen so many problems in so many places,” said Dan Basse of AgResource, a US farm researcher. “We’re concerned about the world story now.”

Paolo Barilla of Italy’s Barilla Holding, the top pasta maker, said last month that the yo-yo prices were his biggest business worry. Rising demand meant grain would cost more, said John Bryant of US-based Kellogg.

Higher prices will help US farm income rise 20 percent to a record $94.7 billion (R636bn) this year, the government estimates. It also means the most profit ever for Deere, the largest maker of farm equipment, analysts’ estimates show.

Futures traders anticipate rising wheat prices to March 2013, according to data from the Chicago Board of Trade.

Speculators tripled their bets on gains in the two weeks to May 31, US Commodity Futures Trading Commission data show. The most widely held option gives the holder the right to buy wheat at $9 for July.

Wheat fell 2.6 percent to $7.7375 a bushel this year by Friday, trailing the 11 percent gain in the Standard & Poor’s GSCI index of 24 commodities.

Prices were last as high as $9.25 in 2008, the middle of a three-year period when 60 food riots erupted worldwide. No one is predicting a return to the record $13.50 reached in February 2008, and global inventory will be 44 percent higher than it was then, the US Department of Agriculture (USDA) estimates.

Wheat slumped 7.4 percent in the two days after Russia, formerly the second-largest exporter behind the US, said on May 28 its ban would end.

Russia said its total grain harvest, decimated last year by drought, might expand as much as 48 percent to 90 million tons this year. Its exports of wheat would double to 10 million tons, the USDA said.

“The fundamental of Russian exports has to keep one in a bearish stance until some new supply or demand issue develops either in wheat or (maize),” said Lawrence Kane, a market adviser at Stewart-Peterson Group. He expected wheat to “continue in the downtrend”.

Demand from some of the biggest importing nations may drop as harvests improve. Egypt, the largest buyer, will buy 6.9 percent less in the year to July 2012 and Morocco 46 percent less, the USDA estimates.

Rolling four-week grain exports to north Africa from France fell 49 percent since March, according to data from Rouen, the main grain hub. The drop suggests no return to the panic buying in the first months of the year when the nations expanded stockpiles to damp prices as riots erupted across the region.

The anticipated decline in import demand will not stop global purchases from rising, the USDA forecasts.

China might double wheat imports to 3 million tons this year, said Li Qiang of market researcher Shanghai JC Intelligence . The crop might slip to 96.5 million tons because of drought, below the 115.5 million tons predicted by the USDA.

About 80 percent of China’s wheat crop was irrigated, which would alleviate damage, said economist Dan Manternach. In areas without irrigation, lack of rain in the next three weeks might again threaten yields.

Wheat output in the EU may drop 3.5 percent to 131 million tons this year, according to experts. France had its driest spring in 50 years, and April in the UK was the hottest in 352 years, forecasters in those countries have said.

The harvest in France, the EU’s largest, will slump 12 percent to a four-year low, according to farm adviser Agritel. German wheat output would drop as much as 4 percent, said Hamburg’s Alfred Toepfer International, a grain trader that previously expected a gain.

Barilla said his firm sometimes had no choice but to raise pasta prices, which was very “disturbing” because “people will never understand why the price has such a dramatic increase in a very short time”.

The world was in a “long-term upward trend on cost of goods”, Kellogg’s Bryant said a month ago. “So we… look at 2012 and say, yes, it’s probably going to be inflationary.”

Deere will report net income of $2.7bn in its fiscal year to October, from $1.865bn a year earlier, according to estimates.

About 44 percent of the US winter-wheat crop was in poor condition by May 29, the USDA said. Rainfall in the previous two months was less than half of normal in Kansas, Oklahoma and Texas, the biggest producers of winter varieties, the National Weather Service said.

Forecasters are cutting their production estimates. The International Grains Council based in London did so on May 26, and the USDA would probably have to as well, Rabobank, Standard Chartered and Barclays Capital have said.

“I’m overall still bullish to the wheat market even with the news out of Russia,” said Jason Brit of Central States Commodities in Missouri, who predicts a high of $9.75 this year.

“There are still enough problems in many growing areas around the world to keep the market well supported.” – Bloomberg

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