World wheat prices have hit an 11-year high in Chicago after confirmation that heavy rain had damaged parts of the US wheat crop.
Wheat for July delivery jumped 10.5 USc to $US5.59 a bushel, the highest for since May, 1996, on the Chicago Board of Trade overnight.
That was after a28.5 US cents leap on Monday to$US5.56 a bushel in Chicago.
Traders said the rise meant wheat futures prices have risen more than 50 per cent over the past year, much of that coming earlier this year as drought slashed the size of the Australian harvest and exports.
The United States Department of Agriculture said the rain had delayed harvesting of the US winter wheat crop while outbreaks of several crop diseases had been noted.
As a result, the latest estimate for the US winter wheat harvest is 1.609 billion bushels, just under last May's forecast of 1.616 billion bushels but more than last year's drought-damaged harvest of 1.298 billion bushels.
That size of decline would not normally be much of a worry, but world wheat stocks are at a 26 year low. Drought is hurting wheat harvests and crop sizes in places like Romania, the Ukraine and parts of southern Russia, so it's a case of every little bit helps, or hurts.
The USDA said Australian wheat production for the 2007-08 crop was unchanged from its May estimate of 22.1 million tonnes. That compares to the drought ravaged 10.5 million tonnes of the 2006-07 crop and the huge 25 million tonne 2005-06 crop.
In the past three months, as much as three times normal precipitation fell in parts of Kansas, the largest winter-wheat producer, and Oklahoma, the second-biggest.
Freezing weather in April damaged parts of the crop in some states and only around one 1 per cent of the US crop had been harvest a week ago, compared to 7 per cent at the same time in 2006.
The USDA said more rain was forecast across parts of Oklahoma and Kansas, with more wet weather on the way in the same area.
Winter wheat varieties account for about 70 per cent of all the annual US harvest. Hard-red winter varieties, used to make bread, are grown in the southern plains, including Kansas and Oklahoma. Soft-red winter wheat, used in biscuits and cakes, is grown in the eastern Midwest, including Missouri, Indiana and Ohio.
(And yet in corn growing areas further west dry conditions are worrying farmers because record plantings of corn have been made and there's billions of dollars riding on the successful harvest for the food and biofuels industries.)
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Here's what the USDA reported:
U.S. wheat ending stocks for 2007/08 are projected down 26 million bushels this month as lower production and higher projected exports more than offset a small increase in forecast carryin. Forecast winter wheat production is lowered 6 million bushels this month.
Carryin is forecast 5 million bushels higher this month as a 5-million-bushel increase in 2006/07 imports raises old-crop ending stocks.
Exports for 2007/08 are projected 25 million bushels higher reflecting stronger expected demand for U.S. wheat as production shortfalls in key exporting countries lower world supplies.
The 2007/08 marketing year average farm price is projected at $US4.50 to $US5.10 per bushel, up 15 cents per bushel on each end of the range reflecting tighter world supplies. The 2006/07 price forecast is unchanged at $US4.27 per bushel.
Global 2007/08 wheat production is lowered 6.7 million tons from last month. Output is projected 7.3 million tons lower as dry weather and heat in Ukraine and Russia sharply reduce crop prospects.
The most adverse conditions coincided with key reproductive stages of winter wheat development in both countries. Production for Moldova is also lowered. Production is lowered 0.6 million tons this month for Morocco as severe drought sharply reduced winter wheat output.
Partly offsetting these reductions is an increase in Argentina production, raised 1.2 million tons reflecting higher expected area as producers respond to high world prices.
With reduced 2007/08 global production and tighter supplies this month, global imports, exports, and consumption are all projected lower. The largest import reduction is projected for EU-27, down 1 million tonnes due to tighter supplies from Russia and other countries in the region.
The largest export declines are projected for Russia and Ukraine, down 2 and 3 million tonnes, respectively. A projected 1-million-ton increase in exports for Argentina still leaves world exports down 2.9 million tons this month.
Even with a projected 3.8-million-tonne reduction in global consumption, ending stocks decline 1.3 million tonnes. At 112.0 million tonnes, global stocks are projected down 8 percent from 2006/07, the lowest in 30 years.
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For Australia, this survey missed the rain last week which flooded coastal parts north of Sydney but which did bring good follow up rains further inland.
What's interesting is the way Chicago prices reacted to that small drop in US production.
There is obviously some interest in wheat from hedge funds and other financial speculators. This price is higher than the level reached in February-March as the damage to the Australian wheat crop firmed up.
If those price levels hold up above $US5 a bushell over the next few months, and the crop stays around 22 million tonnes, wheat grower incomes will rebound nicely from the 2006-07 harvest.
So will the businesses of AWB, GrainCorp, Futuris and ABB.
