November 28, 2012

US wheat price rises nearly 3% as conditions deteriorate

After a lack of rain left the winter crop in its worst condition in 26 years, the price of US wheat rose nearly 3% on Tuesday (Nov 27).

Wheat for December delivery gained US$0.24 to finish at US$8.73 per bushel. The USDA reported Monday (Nov 26) that 26% of the winter wheat crop was in poor to very poor condition and 33% was in fair to excellent condition as of Sunday (Nov 25). The agency said it's the worst conditions for this time of year since 1986.

It's still early in the season for winter wheat, which will go dormant during the winter before it emerges next spring. Typically, there is little correlation between the fall condition of winter wheat and production. But long-range forecasts are calling for a dry winter for much of the wheat-growing region, which could hurt how much wheat is harvested next summer, Telvent DTN analyst Darin Newsom said.

The dry fall can be traced back to the drought that ravaged much of the nation's corn crop last summer. The US Drought Monitor report said last week that 60.1% of the lower 48 states were in some form of drought as of November 20.

Meanwhile, adverse weather in South America pushed up prices for soy and corn. It's been too rainy to plant both crops in Argentina. Some areas of Brazil have good conditions for corn while others have been too dry, Newsom said.

After the US harvest, global supplies of soy and corn were smaller than expected, so companies that use the crops in their products have been hoping for good production from South America to make up the shortfall, Newsom said.

December corn rose US$0.1275 to finish at US$7.60 per bushel and January soy gained US$0.245 to US$14.4925 per bushel.