Wheat wilting as funds turn bearish

Million Bushels

U.S. wheat production plunged 30% in 1933 and dropped another 5% the following season to a 38-year low of 526 million bushels, according to USDA data. Farmers are expected to collect 2.27 billion bushels in the current season.

The USDA probably is underestimating the drought damage to crops in Argentina and Australia, Goldman Sachs Group Inc. analysts led by New York-based Jeffrey Currie wrote in a report Dec. 5. Global inventories will be smaller than forecast, partly because wheat remains an affordable alternative to corn for feeding livestock, they wrote.

Russian production will fall 32% to 38 million tons and Australian output will drop 26% to 22 million tons, according to the USDA. Argentina has said it will curb exports until the end of January to protect domestic supply.

Tighter Supply

Investors may not realize the potential problems with wheat supply, Abdolreza Abbassian, an economist at the United Nations’ Food & Agriculture Organization in Rome, said in an interview Dec. 6. He cited concern over growing conditions in Russia, the U.S. and Europe, and grain harvests in Argentina, where the worst dry spell in 85 years, combined with unusually wet weather in coastal areas, damaged wheat crops and delayed corn planting.

While global food prices tracked by the UN were 2.5% lower than a year earlier in November, the group’s cereals index was 12% higher. Cattle futures rose for a fourth year in 2012 and hog prices for a fifth year as feed costs increased.

Third-quarter profit at Mexico City-based Grupo Bimbo SAB, the world’s largest breadmaker, fell 82% to 369.5 million pesos ($28.4 million), partly because of costlier wheat. The company faces “pressure” on raw materials after the “rapid rise” in prices, Chief Executive Officer Daniel Servitje Montull told analysts on a conference call in October. Futures averaged the second-highest on record in 2012.

With drought also damaging U.S. corn and soybeans, crop- insurance claims for 2012 may more than double to a record $28 billion, according to Doane Advisory Services Co., a farm and food-company researcher in St. Louis. With so much of the winter crop already lost, claims may not subside any time soon.

Farmers Hurt

About 30% of the winter wheat in central Kansas has already failed, with further damage likely unless there is rain, said Rosie Meier, a grain merchandiser at the Great Bend Co-op in Great Bend, Kansas.

“There’s a lot of wheat that did not come up,” she said. “Farmers are going to be hurt. Right now, they’re doing OK because their insurance checks and the higher grain prices kept them going. If they don’t get production next year, they’ll have to rely on just the insurance.”

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