May 29 (Bloomberg) -- Wheat fell to the lowest price since August as farmers in parts of the U.S. begin harvesting what the government predicts will be the biggest winter crop in a decade.

Production will increase 17 percent from a year earlier to 1.78 billion bushels, the most since 1998, the U.S. Department of Agriculture forecasts. About 4 percent more acres were seeded from September to November, the agency said. Wheat prices have tumbled 45 percent from a record $13.495 a bushel on Feb. 27.

``High prices beget low prices,'' said Dan Kuechenmeister, a manager of the commodities department at RBC Dain Rauscher in Minneapolis. ``We've seen a lot of wheat planted, and we're finally going to get a decent harvest.''

Wheat futures for July delivery fell 21.75 cents, or 2.9 percent, to $7.3725 a bushel at 11:54 a.m. on the Chicago Board of Trade, after earlier reaching $7.35, the lowest for a most- active contract since Aug. 29.

Futures have plunged 32 percent in the past three months on speculation increased seeding and favorable weather will boost global grain inventories. Still, the most-active contract has gained 50 percent in the past year.

Farmers in Texas started collecting their crops last week, and growers in Oklahoma and Kansas are expected to begin harvesting in the next two weeks.

About 47 percent of the nation's crop was in good or excellent condition as of May 25, up from 45 percent a week earlier, the USDA said this week. About 49 percent of the crop in Kansas, the biggest U.S. winter-wheat producer, got the top ratings, up from 43 percent.

Production Rising

World production of wheat may rise 6.8 percent to 645 million metric tons in the year ending June 30, 2009, the International Grains Council said on April 24. Global inventories will climb 12 percent to 128 million tons next year, the council said.

Growers in the U.S., the largest exporter of the grain, are expected to produce 65.1 million tons in the year ending May 31, 2009, up 16 percent from the prior year, USDA data show. Stockpiles are forecast to double to 13.1 million tons, the government said in a report on May 9.

Canadian farmers will collect 25 million tons in the same period, up 25 percent, according to the USDA. Canada is expected to be the world's second-biggest shipper of the grain.

Wheat also dropped as the dollar rallied, eroding export demand for U.S. products.

The dollar rose for the fourth straight day against a weighted basket of the euro, yen and four other major currencies, partly on speculation the Federal Reserve will increase borrowing costs later this year.

Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion last year, behind corn, soybeans and hay, according to government statistics.

To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.

Last Updated: May 29, 2008 12:57 EDT