August 25, 2011

Arid fields dim US 2012 wheat outlook

A yearlong drought from US Kansas to Texas has made the driest conditions on record for farmers preparing to sow winter wheat, dimming the country's crop projections for a second straight year.

Dry weather already has cut output of hard, red winter wheat, the most common US variety, by 22% from 2010, government data show. If drought persists into the planting months of September and October, next year's harvest will be even smaller, and prices on the Kansas City Board of Trade may jump 50% to US$13 a bushel, said Dan Manternach, a wheat economist with researcher Doane Advisory Services in St. Louis.

In Texas, where agriculture losses from the drought were a record US$5.2 billion, soil moisture is so depleted that plants may not emerge from the ground without more rain, Texas A&M University said in a report yesterday. Kansas, Texas and Oklahoma were the biggest growers of winter wheat in 2010 and supplied 28% of all wheat varieties produced in the US.

"Most of us are gamblers enough that we will plant a wheat crop," said John Goodknight, who farms 3,500 acres in Chattanooga, Oklahoma, and saw his wheat output drop by a third this year. "We just live and work in the conditions we have. It's exceedingly hard to make it work with drought."

While global supplies are rising as exporters in Russia and Eastern Europe recover from a drought in 2010, Kansas City wheat futures that closed yesterday at US$8.6525 a bushel may jump to US$10 by the end of September, Doane's Manternach said. If drought spurs farmers to plant fewer acres than last year in the Great Plains, the largest US growing region, or a winter freeze damages crops, prices may reach US$13 by March, the highest price since 2008, he said.

"For hard, red winter wheat in particular, we're already down to very tight stocks because of this year's drought," Manternach said. "A second year in a row of poor yields in the southern Plains would be cause for extreme price-rationing."

Kansas City futures, which track the price of hard, red winter wheat, have surged 20% in the past year, topping the 9.8% gain for wheat on the CBOT, where the contract reflects primarily soft wheat grown in the Midwest.

Wheat futures for December delivery slipped US$0.0625, or 0.7%, to settle at US$8.59 today on the Kansas City Board of Trade, after earlier touching US$8.69, the highest since June 14. The price dropped to a nine-month low on July 12, and has rebounded 24% since then.