Wheat rally juiced by global production drop

Foreign wheat crops disappoint

Wheat prices, like the other grain markets, had an explosive rally over the past 10 days because of the oppressive heat in the U.S. Midwest. The big question is: How much of the spike is spillover from the corn pits?

 The U.S. winter wheat crop typically comprises about 75% of the total U.S. crop.The crop is planted in the autumn and harvested the following spring and summer.

As of the most recent crop progress report, 59% of the crop had been harvested, and by now that figure is much higher. Dry weather back in May is expected to have affected the crop to some degree, and the current heat wave will affect some unharvested wheat. Overall, though, the direct impact of the drought-like conditions on U.S. wheat is not nearly as disastrous as it might be for corn. The spring wheat crop has thus far been spared. The most recent crop condition report puts the good-to-excellent portion of the crop at 77%, which was actually up one percentage point from the previous week and higher than the 69% reading last year at this time.

The problems lie outside the U.S. Just about all major Northern Hemisphere producers are having supply issues with their 2012-13 winter wheat crop.

We’ve discussed the crop failures of FSU winter wheat crops in previous issues, and the estimates continue to slip. Output in the second- and third-largest FSU producers, the Ukraine and Kazakhstan, is expected to fall by a combined 16.85 million tonnes, or 37%, from last season. That’s not news. The USDA did not change those estimates from May. What is news, though, is that the inclement weather touched Russian growing areas, but, until recently, analysts did not expect much damage. That has changed. The June crop report slashed 3 million tonnes off the June estimate, to 53 million tonnes. Now private estimates have surfaced that cut an additional 3 million tonnes off the Russian crop. Total FSU output would be about 92 million, down from 117.40 million tonnes in 2011-12.

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