Wheat rally fueled by foreign drought

Focus on Futures: Wheat

The corn and soybean markets have grabbed all the agriculture-related headlines lately. But what about wheat? Well, at least as far as the US is concerned, there hasn’t been too much to say. Wheat crops escaped the drought. For that matter, the August USDA crop report revised the size of the US crop upwards, by 1.2 million tonnes, to 61.73 million tonnes. Farmers increased wheat acreage to produce the largest US crop since the 2008-09 season. The winter wheat harvest is complete and 89% of spring wheat has been harvested.

Nevertheless, wheat prices have rallied by close to 40% since early June — about the same as soybeans. Foreign producers, particularly in the FSU, suffered from drought as well, and produced some dismal results.

The crop report cut a further two million tonnes off Kazakhstan output, to 11 million tonnes, but raised the estimate for Ukrainian production by the same amount, to 15 million tonnes. That compares with crops of more than 22 million tonnes for each of these countries in 2011-12. This was not news, though, because the first estimate for global crops back in May already acknowledged these potential crop losses, and the estimates have not changed much since.

Many analysts, including the USDA, had an artificially high number for Russia, but the estimates are now tumbling. The August crop report slashed six million tonnes off the Russian estimate, to 43 million tonnes, down from output of more than 56 million tonnes last year. More recent estimates by some private forecasters put the crop size as low as 39 million tonnes. Using the lower estimate, total FSU production will be 80 million tonnes, down 30% from 2011-12.

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