July 24, 2012

US wheat prices likely up 8% in August over corn shortage

Due to expectations of a corn shortage, US wheat futures were seen rising another 8% in the next month as more of the commodity will be devoted to feeding livestock, according to a Reuters poll of crop analysts.

"We are going to find support because feed use is going to increase," said Don Roose, analyst with US Commodities in West Des Moines, Iowa. "Substitution is going to be huge."

Wheat prices already have increased more than 50% since the middle of June as a severe drought and scorching temperatures have descended on the US Midwest, decimating developing crops there.

Prices for wheat were expected to peak at US$10.01 a bushel in late August before easing to US$7.26 a bushel by mid-November, according to the poll. Estimates for the second-half peak ranged from US$9.00-14.00.

The front-month Chicago Board of Trade soft red winter wheat contract was expected to end 2012 at US$7.72 a bushel, up 5.2% from the closing price of US$7.34 a bushel at the end of 2011, according to the average estimate in a survey of nine analysts and traders. A higher close would only be the second time in the past five years that wheat has posted a gain for the year.

In January, analysts had predicted that wheat futures would end the year at US$6.09 a bushel. Expectations for the mid-November low ranged from US$6.60-8.00 per bushel. Pressure from planting of next year's crop in the US Plains was expected to cause the decline.

Corn and soy prices have skyrocketed due to the drought, with wheat following along despite a quick harvest of the winter wheat crop and speedy development of the spring wheat crop in the northern Plains. Rising concerns about production in the Black Sea region also has contributed to the strength in the wheat market in the past few weeks.

Although more gains were expected, wheat prices were not seen keeping pace with corn and soy.

"We expect that wheat prices to remain the laggard of the group, weighed down by adequate global and US stocks," Morgan Stanley analyst Hussein Allidina said in a research note. "However, any further supply disruptions in Russia, Argentina or Australia would present asymmetric upside risk to wheat prices."